Primary pension objectives suffer as companies struggle to keep pace with legislative change.
The scale of change within pension legislation over the last five years has led companies to prioritise compliance requirements over the traditional drivers of retirement benefits, according to research by Towers Watson. Employees ability to retire, competitiveness with other companies, cost, and the use of pensions as an attraction and retention tool all finished behind compliance with legislation when companies were asked to select the top issue driving their defined contribution (DC) pension plan provision.
Research by Towers Watson shows that over half (56 percent) of the companies surveyed as part of its FiT for Retirement* report claimed that compliance was one of their top DC pension priorities. Only 38 percent of companies named their workers ability to retire as a top priority and even fewer listed competitiveness (31 percent) and attraction and retention (30 percent) as a driver of pension provision.
Phil Percival, head of Towers Watson’s FiT Age programme, said: “Currently compliance is crowding out employers’ ability to focus on retirement adequacy. This is perhaps not surprising given the barrage of changes the industry has seen in the last decade including the introduction and subsequent reductions of the Annual and Lifetime Allowances, greater focus on governance, auto enrolment, the end of contracting-out and now the new DC pension reforms. “Such a flurry of change is preventing companies from focusing on the real reason for providing pension plans – either for the employer, in terms of attraction and retention, or for the employee in terms of their ability to retire.”
By contrast, in the US where pension regulations have been more stable, compliance was found to be the lowest priority for employers. The survey found that UK employers are hoping to reduce their emphasis on compliance and bring the focus back to providing more effective pensions. When asked to list what they think their organisation’s main pensions objective will be in the future, ‘workers ability to retire’ and ‘competitiveness’ were listed by nearly 60 percent of companies, while just one-in-five claimed they would still be focusing on compliance. The research raises concerns that with few companies focusing on ensuring their employees have adequate pension provisions, many employees will realise too late that they are unable to retire when they originally intended and will have to remain in the workplace longer. Phil Percival believes that this can impact employers in terms of workforce planning, benefit costs and succession planning.
With the number of people in employment aged over 65 already doubling in the last 10 years, employers need to make sure that they understand the financial situation of their workforce in order to gauge the extent to which workers will be able to retire. With this understanding they can start to help employees more effectively plan for retirement at a time of their choosing, as well as planning their own workforce requirements in the near future,” said Percival.
*Towers Watson’s Fit for Retirement report surveyed over 100 companies in March 2015 to discover the impact that recent pensions changes have had on their pension plan priorities.
