Much effort goes into explaining the benefit of a workplace pension to employees, but recent research suggests that employers also need some attention.
According to a Watson Wyatt survey of 70 large UK employers only 18% believe they get full value from their pension benefit spend and only 27% of employees understand the pension benefits offered.
This is not encouraging. But the research also indicates that around 68 per cent of employees believe employer-sponsored pensions or personal pensions are either ‘very important' or ‘extremely important' to their income in retirement. The responses suggest that companies and workers have bought into the idea of the value of pensions but few feel they can actually measure that value in any meaningful way.
Bridging this gap between hope and experience needs to be addressed by scheme providers and advisers. The hard times we're promised over the next year will increase the pressure to provide proof of value. Employers will want to see more evidence that investment in pensions is having an impact on business objectives and employee wealth.
Management information from schemes and staff feedback should tell the story. MI is valuable for tracking the level of member engagement in schemes and identifying where improvements are needed. It can indicate whether members are making any decisions about their pensions and where additional education might make a difference.
It might also point out whether the needs of younger employees are being met; according to the Watson Wyatt research this group is more inclined to rely on non pension savings and property.
Research helps but so can a Pensions Quality Mark. The National Association of Pension Funds (NAPF) is launching the mark to help to promote retirement savings in the workplace. Its criteria are clearly aimed at differentiating private provision from the proposed state-sponsored personal accounts but giving some credit where it's due is a timely move. Business gets the brick bats for jobs cuts and DB closures and not enough praise for investing in pensions.
To achieve the quality mark employers will have to contribute at least 6% (double the personal accounts statutory minimum) and overall contributions of 10% must be available.
The 10% can be achieved through fixed-rate contributions or more complex structures such as age-related or matching contributions. If contributions are 15%, with at least 10% from the employer, schemes can apply for a Pension Quality Mark Plus.
Other core criteria are governance arrangements which ensure that a scheme is operating in the best interests of members and clear and simple information to members when they join the scheme and thereafter.
Judging ‘quality' is notoriously difficult so it is understandable that the NAPF has chosen some simple but measurable criteria. Properly awarded, the quality mark will mean something to employees and it should make employers feel more appreciated.
Martin Palmer is head of corporate pensions marketing at Friends Provident
