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Pension plunge

Apart from anecdotal evidence and personal experience, it is often difficult for IFAs to identify accurately what is hot and what is not in the corporate marketplace.

Although most IFAs would be able to tell you what has been popular in their areas, analysis of the entire marketplace can often be hit and miss.

However, this year&#39s annual employee benefits survey from Aegon national IFA Origen gives an interesting snapshot of comp-anies&#39 employee benefits buying trends.

As expected, key trends this year seem to be the continuing closure of def-ined-benefit schemes, with stakeholder pensions bec-oming the most common schemes, provided by 41 per cent of firms surveyed.

However, the most disturbing trend is the sudden drop in take-up of pensions. Last year, 48 per cent of companies reported pension take-up rates of 80 per cent or higher but this year, the number of firms reporting this rate dropped to only 32 per cent.

Scottish Equitable director of pensions development Stewart Ritchie says there are a number of reasons for the sudden drop this year. He says that in the eyes of employees, pensions have had significantly bad press. He says: “Many employees are reluctant to put their money into pensions, believing it will be lost to them in later life.”

He speculates that emp-loyers are not keen to direct their staff towards their own pension schemes. He says: “The cost of pensions is going up and I wonder to what extent employers still try to get people into schemes, considering that every new entrant into a scheme is a new payroll cost.”

Other findings seem to identify openings for IFAs. Only 10 per cent of firms surveyed presently offer flexible benefit schemes and only 8 per cent are currently planning them but 56 per cent of companies are considering implementing schemes.

Origen pensions specialist Mark Stopard says: “Flexible benefits have inc-reasingly become a hot topic and one that employers must have a view on if they are to remain competitive in the labour market. IT advances have made flexible benefits a serious option in a way that was simply not feasible a few years ago.”

But at a time when pro-viders are launching more and more critical-illness products, it seems that the corporate market has star-ted to shrink, with a drop in the proportion of businesses offering CI to their staff down from 22 per cent to 12 per cent. Addit-ionally, 34 per cent of companies still say they will not consider offering CI to their staff.

Stopard says employers fail to see the need for CI cover when they are already offering either group disability early retirement benefits or death in service.

He says: “CI should not be seen as a replacement for disability insurance. Aware-ness and appreciation of this benefit has increased among single employees who do not see the need for life insurance. Employers must be aware of the inc-reasing popularity of this benefit and should consider offering it either as a main or voluntary benefit.”

Bright Grey spokesman Mark Locke says: “Tradit-ionally, the marketplace for CI cover has been individuals but flexible benefit schemes now open it up as an option in the corporate marketplace, where emp-loyers should realise that there is a growing demand for it with their staff.”

Undoubtedly, greater IFA penetration of the corporate market would lead to increased CI cover sales but, presently, 31 per cent of firms have no intention of independent advice for their staff.

Equally, the survey found that only 29 per cent of firms offer financial advice to all their staff and 28 per cent may consider offering it in the future.

The Jelf Group business development director Brian Lawless believes the majority of firms in the UK need to provide more financial advice to their employees but he says Government initiatives such as the Chancellor&#39s £150 per employee tax break, announced in April&#39s Budget, will not do a lot to incentivise emp-loyers into providing more advice. He says: “Most IFAs know £150 of advice will not go very far.”

Stopard believes more needs to be done to put IFAs in front of employers.

Origen found that 48 per cent of firms are uncertain whether or not independent financial advice is a useful tool for communicating staff benefits and 15 per cent disagree that IFAs can help them communicate with staff. Eighty per cent of firms believe educating staff encourages take-up of benefits.

Twenty-nine per cent of companies presently provide independent advice for all their staff and 31 per cent say they would not consider offering it to their staff. Presently, 59 per cent of companies do not offer independent financial advice to their staff.

Employers are split over whether or not they think their staff are worried about pensions. Thirty-nine per cent believe they are and 37 per cent do not.

Stopard says: “The need for financial advice has never been greater and res-earch clearly shows that people are highly confused by financial issues.

“For employers struggling with effectively communicating their benefits, it might be advisable to investigate how external financial services companies can help.”

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