Survey reveals that just 20 percent of employers intend to make changes to their company pension scheme as a result of the recent Budget and DWP reforms.
Laith Khalaf, Head of Corporate Research, Hargreaves Lansdown:”The recent pension reforms mark a profound shift in the pensions landscape and should prompt a review of default strategies, retirement communications and the cost of advisory services.
Almost every company pension scheme in the land will have to make some changes to accommodate these new rules. However, at present, most employers appear to be seriously under-estimating the practical impact of these reforms. The danger is they are sleepwalking into offering a company pension scheme which is no longer fit for purpose.’ Steve Webb, Pensions Minister (Speaking at a recent Hargreaves Lansdown Employer Conference- 25th June 2014): ‘Workplace pension provision is something that employers should review on a regular basis and, of course they’ll have to as new standards come in.’ 60 percent of employers think more employee engagement in savings decisions would make the UK pension system better. Only 15 percent think that Collective Defined Contribution schemes will improve the UK pension system. One third of employers support increasing the minimum employer contributions to auto-enrolment schemes.
(The HL June Employer Survey took place on 25th June 2014 and canvassed the opinions of 302 employers of various sizes).
Five things employers need to review in light of the reforms
1. Retirement communications
From next April, pension freedom will mean that employees can take their pension as and when they want. Employers need to make sure that retirement communications today give employees notice of the impending flexibility, in case they mis-buy an annuity.
2. Default strategies
Lifestyling strategies are designed for employees who buy an annuity. Currently 90 percent of employees do just that, but estimates suggest this will fall to around 25 percent from next April. A traditional lifestyling strategy will therefore be inappropriate for the majority of the workforce, and needs to be reviewed by next April at the latest.
3. Charges
Schemes above the 0.75 percent charge cap will need to be reviewed by April 2015 at the latest. Schemes with an Active Member Discount will also need to make changes by April 2016 at the latest, as they will be banned from that date.
4. Advisory services
Commission payments to advisers are being banned from April 2016, so advisers are going to start asking employers for up-front fees for their services. Employers need to review the quality and cost of advisory services to make sure they are getting value for money.
5. Financial education
The new pension freedom means employees will have to make more of their own decisions about how to draw their pension plan. Financial education can help them prepare for this. Pension providers and advisers can really add value here by offering employees seminars, one-to-one meetings, and online tools and information to help them make the most of their company pension scheme.
