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Be positive on pensions

Financial advisers could be doing much more to counteract the negative publicity that surrounds the pension industry at the moment.

With their knowledge and experience, they are in an ideal position to advise clients – employers and employees – of the positive aspects of pension provision.

This extends to encouraging employers to set up and contribute worthwhile amounts to schemes, selling the benefits of scheme membership to employees and promoting the need for members to pay reasonable levels of contributions.

A recent ABI report, One year on – stakeholder revealed, contained many interesting findings including the following:

A total of 320,000 employers are now making stakeholder pensions available to their employees out of a target number of around 350,000.

Over 750,000 people have bought a stakeholder pension.

Just over half these plans have been bought through the workplace.

Those with high earnings who contribute to stakeholder pensions for their spouse and children can take care of themselves but it will take more than a year to increase take-up of stakeholder schemes by employers, especially those willing to pay worthwhile contributions for employees on modest earnings.

Unfortunately, the background is not conducive to employers and employees thinking about pensions in a positive manner. A combination of moves by employers away from defined-benefit schemes in favour of defined-contribution schemes, usually with lower pension contributions, the often-misplaced criticism of annuities and the unattractiveness of contracting out of the state second pension make other employment benefits seem more appealing.

Take the company car – significant changes to the taxation of company cars from April 2002 will mean that many will opt out of car schemes, trade down to less expensive cars in future and pay for their own private petrol. Overall, many will end up paying less tax and having more money in their pockets.

Employees know that company cars are now a much less attractive item in a flexible remuneration package. How do they know that? The answer is because employers have communicated the changes to staff and also because most car drivers are very interested in the subject.

Unfortunately, the benefits of pension schemes, ultimately much more valuable than company cars, do not merit the same attention.

If employers were to market their pension schemes as well as they market company car schemes, employees would be better educated in financial matters and would realise the need to start contributing at an early age and to keep their plans under constant review.

Of course, the company car comparison is unfair. Employees can visualise immediately a brand new shiny car and hear the roar of its six-cylinder, 24-valve engine as it races from nought to 60 miles per hour in six seconds.

Pensions do not conjure up the same excitement in the mind&#39s eye.

There is nothing tangible in a pension and, in any case, the decision to invest can be deferred until another day.

The chicken and egg syndrome is evident in relation to pension contributions from employers and employees who do not have any experience of pensions.

Even though an employer has designated a stakeholder scheme, albeit because he was obliged to do so by law, he will not contribute to it as he thinks his employees will not be interested.

The employees do not contribute because there is little information on the scheme and, more important: “The employer isn&#39t paying into it so why should I? It is not worth my joining.”

IFAs are in a position to encourage employers to use the pension scheme to the advantage of the business in attracting the right staff, retaining and motivating them.

The first stage is for the IFA to convince the employer of the need to contribute to the scheme as that will be the main reason for its success or failure as an element of the remuneration package. The second stage is to encourage members to contribute too.

Employers should allow financial advisers to conduct seminars for employees in offices and factories so that they can educate staff and paint pictures in the mind&#39s eye of the employees. IFAs&#39 powers of persuasion are key to the success of stakeholder.

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