debi o’donovanGiven the column inches dedicated to personal accounts over recent months, you would think they were top of mind for everyone. However, we are finding that the vast majority of employers have not considered the implications of the incoming pensions changes.
As ever, the best practice employers are on the ball. Several having written strategy documents ahead of the changes, with others tweaking existing enrolment and contribution rules to ease in any financial pain over the next four years. Retailers in particular have had to look into the implications of auto-enrolment when they have huge seasonal workforces.
In the Employee Benefits/Towers Perrin Flexible Benefits Research 2008 published in March, we asked if the introduction of personal accounts would influence employers’ perception of flexible benefits. Admittedly this is a narrow angle, but until we run our annual pensions research in August, this serves to give us some guidance on employer reactions.
Using our sample of nearly 500 UK employers, we found that 3 per cent have decided to offer pensions as a standalone benefit through a salary sacrifice scheme in the light of incoming personal accounts, while a further five per cent have considered introducing pensions to their flex schemes. Conversely, 4 per cent are reconsidering whether they should continue to offer pensions via flex as a result of incoming personal accounts.
We would expect these numbers to build as personal accounts are finalised and employers are fully confident that they will become a reality (there are some advisers who are questioning if personal accounts will survive past the next election, should there be a change of ruling party).
Assuming all goes to plan however, four years is a short time in employers’ benefit planning strategies especially those with large, scattered, diverse or unionised workforces. Renegotiating employee contracts to use salary sacrifice or switch to flex can take months. Meanwhile explaining auto-enrolment and increased contributions to staff without scaring the horses, and instead increasing pensions savings among the UK workforce will be a major exercise in communication (as Otto Thoresen’s report last month demonstrated). Now is the time to start looking at the bigger reward picture to make the changes a positive rather than negative experience for employer and employee.
Debi O’Donovan is editorial director of Employee Benefits magazinePersonal accounts are a double edge sword for advisers. On the one hand they will open up more opportunity to promote occupational and group personal pension schemes; on the other they could open up the threat of employers choosing what will be perceived as an easy and cheap opt out for pension provision.
The opportunity for advisers is simple: provide employers with flexible wealth creation vehicles that are better than personal accounts at directly contributing to influencing employee behaviour, generating a maximum return on investment and helping win the war for talent.
The key to this is to understand that although employees are becoming more sophisticated in terms of their wealth creation and expectations, there is still a level of apathy when it comes to their pensions as a means to saving for the future.
Today, communication is often about managing expectations and perceptions. An increasing number of employers are moving their pension schemes into more flexible arrangements, such as flexible benefits schemes, because their choice, flexibility, branding and marketing make them better vehicles for achieving this.
One of the drivers behind the development of personal accounts is the government’s desire to improve financial education in the workplace. Employers are increasingly looking to initiatives such as flex to ensure that employees understand the options available to them.
With an increased focus on cost management and return on investment, there is likely to be a growing interest in the use of salary and bonus sacrifice. Employee NI savings can be used to boost the contributions to the pension. Company NI savings can be used to offset any costs associated with the new scheme. However attractive this may seem, care must be taken to ensure that certain employees are protected from any detrimental effects on their state benefits.
Time is running out for employers and their advisers to evaluate and plan for the introduction of personal accounts in 2012. It can take up to five years to design implement, roll out and bed in a new or modified pensions scheme. Those advisers who take the initiative to react now will surely have a competitive edge of those who do not.
Philip Hutchinson is head of corporate Sipp sales ate Pointon York Sipp Solutionsphilip hutchinson