David Baker, Compensation & Benefits Manager – Mayer Brown International LLP
Jackie Bornor, Head of HR – IG Group Holdings plc
Suzi Lowther, Director – Ammatti Communications
Caroline Scott, HR Director – Impellam Support Services
Laura Sinfield, Head of Central Finance – EMAP
Jane Williams, Interim Reward Director, People – Innovation Ltd
James Biggs, Corporate Pensions Specialist – Lorica Consulting
Simon Gregory, Head of Flexible Benefits – Lorica Consulting
Peter Banks, Managing Director – theHRDIRECTOR
theHRDIRECTOR Pensions Part 2 Roundtable, was a sequel event to a debate that was held in July 2010. All delegates agreed that a second event was required to drill into the key findings of the first. All acknowledged that nothing short of a significant cultural shift in pensions, would reverse fortunes and future outlook.
A cultural shift must begin with re-engagement and communicating information via the channels that are used by the majority of people, every day, online and via mobile devices. There are practicalities and pitfalls to consider when developing an online communication strategy such as; design, data protection and security, as well as many other HR considerations. Unquestionably, technology is moving forward at a phenomenal pace and there is every indication that an e-Pension platform could be the panacea to the considerable challenges ahead. But there is much planning, preparation and crucially, education to be done, to achieve that all important platform, delivery and forward-looking strategy to achieve a seismic change in culture.
How can we effectively and efficiently educate and engage employees of all ages on pensions and personal finance?
Jackie Bornor: A lot of older people whom have contributed, are probably thinking what was the point? To them, investing in housing probably has seemed more likely to yield good return
As you said Jackie, people are investing in houses because in living memory property has, by and large, not let people down, whereas pensions have.
James Biggs: The rules have subsequently tightened up, but I think most people don’t have a reasonable sized pension at retirement, because they haven’t engaged with it properly and done the right kind of planning. We will all retire on the income that we want in retirement because we’ve saved enough money and we’ve done it for long enough, and it’s grown well.
Look at the mindset of graduates coming into the workplace, they’re already £30,000 in debt, they can’t afford to get on the bottom rung of the property ladder, how do you sell the importance of putting a significant percentage of their income into a pension?
Jane Williams: The issue around pensions, is that it’s the one financial vehicle that is subject to Government intervention. This is an unknown factor which concerns people because they believe it’s a tax advantage to invest in the scheme but who knows, when the Government is tight for money, they change their approach and go on a ‘raiding party’.
Jackie Bornor: The main message to new employees is, if you do not pick up on paying into the pension, you are losing ten percent of your salary, because that’s what our input is, so take the advantage. But I think, in the future, flexibility has to be the key.
Caroline Scott: Pensions have been a retention tool, part of an engagement strategy, but the world has changed, the majority of employees do not want jobs for life. A large number of employees have several pension savings pots, which are frozen, there is the fear that this money is lost, or individuals lose the paperwork, so again this puts people off. The proposal by NEST will solve this problem and make it easier for people to keep one pot.
There seems to be a lot that is wrong at the very core of pensions. Let’s start with the word itself, what does it mean to a 23 year old graduate?
Suzi Lowther: Pensions is the wrong word for this. It’s about individuals understanding their financial future. Is it right for employers to only focus on somebody’s financial future in retirement or should we actually also be helping people understand their financial future now or in five years time? Should we help people pay their student debt, help fund their first home, their wedding, look after the kids, childcare and school fees?
Simon Gregory: As long as you can create the right kind of behaviours, then to a degree, the problem will solve itself, whether there’s a lack of trust in pensions as a concept or whether people favour property, is irrelevant. Part of the issue is that as a culture, we are all about spending on debt and we’re not about saving for the future. We live very much for now and we give scant regard to what’s going to happen in 20 years time.
Peter Banks: It’s also an issue of trust, I remember when I first had a pension years ago. I didn’t know enough about my pension to think, I’m going to double my investment, I purely thought that I’m already putting by far enough in already. This lack of trust by me, probably had a detrimental effect on my pension in those early days.
Jackie Bornor: Education is not “I know better than you”, I think it’s an education process where you are responsible and, unless you take responsibility, you are going to be left with nothing.
Jane Williams: One of my clients operates counterculture in the sense that they, have a DB Scheme, closed to new members. A large proportion of their management are in that DB scheme – and as a utility company, they have long term goals and because of that the concept of pensions and pension membership even the GPP as long-term savings vehicle fits well within the culture.
James Biggs: What the Government should be trying to do is encourage a savings culture and a savings vehicle that matches the culture. Should we be thinking about different vehicles, that allow you to save tax efficiently, but access money at points in your life when you really need it, like paying off a student loan?
I think lack of trust is a significant issue. That has to be overcome, then its promoting individual responsibility.
Simon Gregory: The message must be ‘take responsibility for your financial planning for your future. How many people still think ‘the State will take care of me’”.
David Baker: We’ve heard quite a lot about people taking responsibility for their own savings. If you tell people that, if they don’t contribute to the pension, they’ll lose that ten percent, they’re going to say “OK I’m taking responsibility, give me my ten percent, and I’ll do what I want with it”.
Simon Gregory: As an industry, financial services will be saying to employers, here’s something that allows the individual to put their ten percent in and if they want to leave it in a deposit account or they want to put it into an ISA or put some into a Pension or save it for three to five years and use it for a deposit on a house then they can do that, and you give them that responsibility, you trust them to do that.
A headline grabber is always how business leaders seem to get all the breaks in pensions and other benefits. That’s another negative issue for rank and file workforce.
Jane Williams: There are a lot of senior Directors that are getting 30/40 percent as a personal cash payment.
James Biggs: Into a pension? Well with a 50k cap that I guess will stop a bit of that.
Jane Williams: Some of the payment does not enter pensions at all, it is a cash allowance. It is packaged as long term, as a pension, yet it is a cash payment.
James Biggs: We’re being led to an extent by this sort of sentiment with the invention of the idea of a corporate wrap, which is linked to pensions. There are some players in the marketplace who basically have bet their house on it. They said ‘our way forward is going to be corporate wrap’. So maybe corporate wrap is the right place to give the ten percent, so that some of it can go into cash for now, some of it can go into an ISA for five to ten years time, and some of it can go into a pension.
Jackie Bornor: We only use pensions because that is more tax efficient than giving people the ten percent up front money – we have got pensions, because there’s a taxation advantage but once that starts to go, what next?
Jane Williams: Another trend in the executive remuneration field, is a return to a longer term philosophy with a deferral of bonus or part of it, as deferred to shares or cash. If shareholders support a long term horizon – what effect would that have, if this extends across the whole workforce? The area that’s of concern is the rate of turnover amongst the Board, and the level of tenure is dropping now to just under three years.
Jackie Bornor: The new efficacy guidelines around this deferral are just going to be so complicated, because you’re never going to get a clean break – if someone leaves, are they allowed to get the money back, and at the moment, you’ve got an accounting period of usually 12 months which will now become at least 24 months if not 36.
Going back to people losing track of their pensions, surely this can be overcome.
Jackie Bornor: I think having that almost like your NI number, would be your pension number and that is your pension scheme and it might be held by Scottish Widows one day and someone else the next, but that was your defined scheme and your were able to have that all the way through.
Also the word pension. Should it not be called something like ‘money for life’?
Jackie Bornor: Absolutely, the notion that you can’t touch that money until you’re 60 or 65 seems very rigid.
Peter Banks: By having your pension pot clearly shown on your pay slip would be a good start, you would know where you were each month. However I appreciate not a great deal of change happens each month, but this would be more about education.
Jane Williams: This is one of the factors with which people struggle when working across geographical borders. How do you get any form of equality of reward particularly in respect of pensions? Could there be a corporate wrapper including both employer and employee contributions which on leaving the employer transfers into your own personal corporate vehicle?
Jackie Bornor: Yes, why can’t you get one scheme that covers all of the countries in Europe? We are supposed to be breaking down barriers to make global business easier.
What about this culture shift, it’s a nice sound-bite, but is it possible?
Simon Gregory: I think that’s exactly what we’re trying to do as an industry by developing this corporate wrapper, it can’t be done quickly. If Government is proposing NEST for example, has gone through several iterations. The proposed shape has changed and now that we finally know pretty much what it’s going to look like, we can react to it, but actually that’s rather late in the day for when it’s going to go live.
Is the pensions sector singing from the same hymn sheet?
James Biggs: Ask ten firms of benefit consultants what they think the answer is, you’ll get ten variations on pretty much the same answer. The general theme is towards more flexibility around how people save, how they invest, how they draw that money back out of their funds, how we communicate that to the employees and how we communicate with employees generally. Everybody seems to be moving in the same direction but everybody wants to say that they do it, differently or that they do it better. Compulsion really needed to happen, but I’m not too sure that they listened to everything that our industry said.
Simon Gregory: There is a general shift towards changing behaviours generally in the workforce, people aren’t following the patterns that our parents and our grandparents followed, they want more flexibility.
So how do you promote selfresponsibility?
Laura Sinfield: Auto enrolment is a first step in educating people at a very basic level as it brings into place the understanding that everyone should have a pension. However it is a very blunt instrument to achieve this. It would introduce the cultural shift required to make saving for retirement the norm.
Suzi Lowther: As an industry we’ve been guilty of assuming it’s too complex for people to understand and that’s just not true.
Peter Banks: I believe the employer has to take more responsibility for financial education, as they are paying the employee the salary in the first place, so why not take some responsibility for how they actually spend that money and give them help and guidance to manage their finances, especially so they are not spending above their means.
Jackie Bornor: We have got a kind of a dripping tap effect of having the annual visitations, an independent advisor coming in at least monthly if not twice a month, and access from there, but the biggest switch is for individuals to actually sign on to their own portal, and see how much they’re saving.
You’ve got to find a way of actually engaging and switching on everyone, regardless of age or position in the company.
Peter Banks: It’s also about simplifying the language that is used, we see it all of the time ‘industry language’ is used in a very bad way, so only those in the know truly understand, so simplify it down to a level that anyone can understand no matter what role they might have in an organisation.
James Biggs: And access, transparency and interactivity, even just on an intranet site. When you get people beginning to talk about it, then you know you’re winning, but it’s who will set this up and communicate it, supplier or employer?
If employers are taking that mantle of responsibility, they’re going to have to pay for it, and advice that has to be paid for too.
Jackie Bornor: Let’s look at pension take up, currently less than 40 percent, but that’s going up 95 percent at compulsion, that’s going to be a big cost almost overnight.
Caroline Scott: We’ve got 3500 employees the majority who are not in pension schemes. Our typical employees are service people, cleaners, security guards, it’s going to put up our margins. I think pensions are a lifestyle choice, as an employer, we need to offer relevant products but at the end of the day, the employee should have the right to choose.
A lot of businesses will be thinking ‘This is the last thing we need’.
James Biggs: It is all going to bite right at the worst time ever. We’ve had flat salaries for two maybe three years, people that were accustomed to getting bonuses are now getting none. People whose ability to therefore cope financially with an enforced additional saving – it is going to be more of a pinch and employers that were hoping to plunder future pay rises and profitability in the business to fund that.
Caroline Scott: New employees need time to establish themselves before they decide to contribute to a pension scheme.
Jackie Bornor: This is going to be a cost and it’ll need a significant administrative resource. I think we have to have the discussions around how we get the processes slick, but it’s going to be an administrative nightmare for employers and costly at a time when we should be streamlining costs.
James Biggs: To go back to this issue about cost. I’ve worked in a fee based market and I have to say there’s a horses-for-courses kind of position, where each employer will decide how it wants to engage in delivering those services. But a large proportion have used commission from the contract to fund the activity of the pension consultant. The sector is split. How is it going to work in the future? There are difficult choices for consumers. I think what will happen is, this is just a view of the future, is that some companies for employees where it’s pretty transactional in joining the scheme and let’s face it, auto enrolment becomes a transactional thing, will deal direct with the provider. If so, let’s hope the provider has something pretty engaging for you to understand and be in tune with your pension planning.
Jackie Bornor: UK plc isn’t used to paying for a service, especially something its had for free. I was always quite happy to pay through commission, for our financial advisors, because it was another invoice that I wasn’t receiving. Obviously I knew they were getting their money and that’s fine.
Simon Gregory: For the vast majority of advisers that do a diligent, ethical job, commissions are just an option, so this is one way of delivering benefits, but as an industry we have been guilty of not policing ourselves well enough when we had the chance and, as a consequence, we have had this regulation forced upon us.
What has been delegates relationships with pension suppliers, and what are the key concerns at the moment?
Jane Williams: The most effective relationship is one closely aligned to the business. In terms of concerns, DB pension plans are value at the moment and the influence of the most recent accounting approaches which is putting considerable pressure on the viability of schemes. The Stock Market has a role to play in this as well.
James Biggs: Ideally, the business has decided what it wants, who’s going to deliver it and how it sensitively needs to tune in on what the employees need and they’ve agreed how much it’s going to cost them to do it. Then the most important thing is to communicate that as effectively as you can.
Jackie Bornor: The majority of our new starters are aged under or around 25 and they don’t see the pension scheme as being as big as the salary.
How could technology be utilised to get everyone onboard pensions, engaged and taking full responsibility?
Simon Gregory: Technology can do virtually anything, so if you can come up with a concept, the technology can be created to accommodate it. As a sector, we are still probably ten years behind the technology curve itself, but technology doesn’t answer all the questions, it’s not the silver bullet, it’s not going to solve the challenge of communicating with employees. But as a complimentary tool for communicating to staff it’s definitely part of the way forward.
Caroline Scott: The HR community needs to be creative about how we tell the pensions story. An electronic game would be a great way of educating the need to save a pension and the implications if you put off saving until you are older.
Jackie Bornor: Even in this day and age, if I want to make changes, my insurance company, for example, needs a written letter with a signature. The problem is, like many things, the aspiration and technology is there, but the reality is not.
James Biggs: And as long as people use it, because the argument used by the providers is ‘we’ll build it but we have to justify building it. If our MI shows that nobody’s using it then why are we building it’. So we might have launched a pension scheme for 150 employees and put in place a methodology where they can log on and check their pensions scheme online. And yet a year later you realise that nobody is using it – we did this for a bank, 700 employees, and we looked at their MI. The online function had been used 63 times – not 63 people. So communication has to be right.
Suzi Lowther: Pension providers all feel that they can’t send you your fund value in a text message, but they can send you a text message asking if you have looked at your pension pot recently, together with a link of where to look at it. But it’s amazing how few employers actually use messages to mobile phones. It’s a missed opportunity to interact regularly and inexpensively with pension holders.
Laura Sinfield: Using technology would make information a lot more accessible to the majority of people because, as you said, if you give them a big dossier they don’t want to read it. If it comes in a format they’re used to seeing like an email or just an online facility you can log onto easily and see the value of your pension pot etc., with visuals like graphs so people can get a better understanding and engage more with it.
Isn’t the key to engagement giving people interaction and flexibility?
Jane Williams: The more sophisticated environments such at the outsourcing industry where everybody’s got a laptop anyway, then it is much easier to develop electronic solutions.
James Biggs: We’ve found that people don’t look very often at the value of their pension fund but they are very interested in the value of their role and the total reward or remunerative value of what they do.
Jackie Bornor: The hook for us is them being able to change their funds, we must make pensions more transparent and simple to understand.
Simon Gregory: There’s a disconnect between the back office and the front office in many insurance companies and from our perspective, what we do is entirely about reducing administration and manual intervention to minimise the risk of errors and that’s fundamentally what technology is about in general. Our view as a company is that all of that should be joined up and our role is ensuring that from the employer’s perspective, and the employee’s perspective, it is joined up, so if a company comes to us for advice and guidance around their benefits, they will get a piece of technology that facilitates joining into the benefits, that drives people towards those benefits, is focused on engaging the employee and giving them an enjoyable experience. They will get the planning tools they need and it will link them to other providers and parts of their business on a single sign-on basis.
Suzi Lowther: I can understand frustration where it takes two envelopes of information in order to log on to your website, but we are forgetting that there are people in the UK who have got a trust based pension, be that DB or DC, most of whom will have no ability whatsoever to look at it online.
James Biggs: I did a presentation to some employees this morning and someone said that they had lost trace of all their pensions, and hadn’t got any of the paperwork. Some of the companies didn’t exist anymore. It can be traced, but that’s pretty shocking isn’t it?
Jane Williams: I think that the only way to build a ground swell for change is to discuss the issues in open forums, indicating a lack of accountability and see if there is any support. I think this is an issue which, as a profession, the HR community can contribute to, as we know what happens and we do not believe that this is fair by employees.
Jackie Bornor: I’ve got two or even three final salary schemes somewhere, and there’s part of me that thinks it’ll be a minor miracle if I ever get anything from them when I retire.
Peter Banks: My father recently retired. He worked hard all his life and has his affairs in good order through a small IFA. But the delay in getting at his various pensions became a real worry for him. He knew the amount he was due, but he couldn’t get the money, it was delayed and delayed. It was awful to see him getting extremely concerned and even thinking he would lose what he had built up over the years. I am pleased to say, it was all resolved.
But that’s the paternalistic view – we were talking earlier about promoting personal responsibility.
Simon Gregory: Going back to portable pensions. The truth is that from the employer’s perspective, it isn’t practical to contribute to the separate individual pensions of 1,000 employees, so what has happened for the vast majority is that when they left it became an individual pension scheme. So by default, people have multiple personal pensions and actually, I don’t know that there is an answer to that. NEST is probably as close as you’ll get to that, but whether that actually solves the problem…
James Biggs: Not until 2017 and beyond.
Jackie Bornor: Major providers could make it easy to transfer money from one provider to another – the big problem with company pension schemes is the transfer value, you’re lucky to get half after costs.
Simon Gregory: Well there’s huge variation in charging across pension schemes. The rules have changed, as they relate to individual pension schemes, and that’s actually what drove a lot of the changes that you are referring to, about making it easier to move your pension around, so it was driven by legislation.
James Biggs: The problem we’ve got at the moment in the UK with pensions is that to enroll people, if we really want a high take up you’ve got to give one-to-one advice. Beyond 2012, though you don’t need to as people are going to be auto enrolled, so actually getting to members and getting them in the scheme suddenly becomes as I said earlier, transactional rather than advisory.
Do employers feel that they’re just being dumped on by Government, and they’re not being adequately assisted?
Jackie Bornor: It’s another way of Government saying ‘it’s nothing to do with us, it’s employers and your employees responsibility. I think the majority that can, will have to work way beyond retirement itself – the nearer you get to it, the further away it seems.
Simon Gregory: I think there’s a few things that will happen; People will be annoyed and surprised at the level of contributions required from day one, and yes it will feel like a tax, and. they will be similarly annoyed and surprised when that goes up in a couple of years time, because the Government says, actually, you’re not paying enough, so the compulsion now is higher.
Jackie Bornor: And if you look at the economics and the number of people that are going to rely on Government pensions which are completely funded by the Government, they need to do this come clean – there is no money, this has to be done, and this is the long-term prognosis.
So the cost still sits with the employer?
James Biggs: We’ve been using the word cost haven’t we, it’s a cost to the employee and it’s a cost to the employer, but actually it’s neither by both, it’s actually an investment by both. The employer is investing in the employee – it’s part of the benefits total package.
Jackie Bornor: I think it’s an investment by the employee and I think it’s a cost to the employer.
James Biggs: But your ten percent is definitely an investment in your employees isn’t it. Take death in service contract has a standalone four times salary – life contract actually does do that doesn’t it? It ensures, from a corporate moral responsibility if somebody dies, they’ve got something for their wife and family.
Suzi Lowther: I think there is a danger with NEST and auto enrolment, if an employer sees it as a cost, as opposed to an investment, that employers basically don’t say anything to their employees apart from ‘OK, you’ve got to do this now’. Employees will feel that you’re only doing it because you have to and that’s the worse place you can be.
Jackie Bornor: Employers are going to have to pay, but will the cost really be valued and appreciated by people? It could become a disengagement, and employers are doing a whole lot of communication, persuading people and the majority will be thinking ‘do you know what, I don’t want this’.
Simon Gregory: As a country, we need to change from a culture of spending on debt to saving.
James Biggs: If you have1000 employees and you’re offering them ten percent of salary, and an employee gives five percent of their salary say that is £100, added to employer contribution that’s £300 a month. But in fact they’re not really paying £100, it’s actually £80 because of tax relief. Let’s say our employee 25, I quite like the maths – where else could you turn £80 into £300, immediately?
Simon Gregory: Jackie, I would suggest there is an assumption within your view of your employees that they’re struggling to live in London, they’re paying off student debt, they’re doing all of that which is absolutely the right thing to do for those individuals where they can, but you cannot assume they don’t socialise and how much of that disposable income do they spend every weekend down the pub? If you can convince them to just take a little bit of it and put it away, then you create a habit.
Jackie Bornor: But that’s not F.U.N. and that’s the big thing isn’t it. It’s like, you know, I’ve done all the studying, I can think about it later.
James Biggs: You’re right and so our challenge is to make it fun and also to get that message across because even when you’re thinking of somebody earning 24 grand a year, that’s £3600 going into a pension, but it’s only actually eighty quid a month.
That’s seems like the simple, compelling message – the hook.
Simon Gregory: That can be done, because every single pension scheme that you have ever had in your entire working life is connected to your National Insurance number, in order to get the tax relief.
James Biggs: Yeah, It would solve this problem with these trustees funds because they’ve all got the National Insurance number tracked onto it. They will have a National Insurance number and it’s the only route that most trust based administrators have got when they have somebody coming up to retirement. And there is still this perception that it costs you money to move a pension whereas actually it’s pretty simple to move pension schemes. We can pick up your old monies and move it around for free, and you could do it all yourself online. When someone joins an organisation, it should be “there’s you desk, there’s your computer, there’s your pension and benefits statements, and let’s sort out your old pension”. That would be easy wouldn’t it? But then life isn’t that simple. The problem with NEST is, and I know this is under review, you can’t transfer your old pension into it, well that needs to be changed!
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