Each month DC World asks readers for their views. This month we ask: What more can be done to ensure people are aware of their options at retirement?
Helen McArthur, head of communication and engagement, Hymans Robertson
As an employee heads towards retirement they become increasingly interested in their pension. But just because they are interested doesn’t mean the challenges of effective communication go away. There is still a lot of complex documentation to work through so the principles of pension communication cannot be forgotten.
Retirement communication needs to be kept clear and simple. If there is too much technical information there is a danger it will not be read at all.
Targeted communications are needed to make employees more aware of their options. Employees should only be sent details of options which are available to them. Irrelevant options will just create confusion.
The delivery mechanism for retirement communication also needs to be right. Employees should have the choice to receive communication in a format that suits them. This will increase the time employees will give to their retirement planning.
Education on retirement options should start early so the learning curve is not too steep. The annual benefit statement is one place to provide this education and more can be done to make these statements engaging, informative and easy to follow. They should be tailored more so that employees who are nearer retirement get more appropriate messages.
Allowing employees to carry out some scenario planning will also give them more insight into their options. They will be able to see the impact of making certain choices, which will raise awareness of the choices they have.
Clive Grimley, partner, Barnett Waddingham
The Pensions Regulator is currently focusing on this and it will be one of the requirements of the NAPF’s forthcoming Pension Quality Mark for DC schemes.
Almost all members need some guidance to make decisions, ranging from:
• Basic information – For example, how state pension arrangements work.
This can be done by group presentations without need to discuss individual cases or provide independent financial advice.
• Limited advice – For example, answering questions such as ‘should I join the scheme?’, or ‘what level of voluntary contributions would it be appropriate for me to pay?’
This can be done by announcements and group presentations, more personal comments will constitute financial advice. Many employers do not want to sponsor financial advice, although some may accept this if there is no cost to them, suggesting the use of commission.
• Complete retirement planning advice – This constitutes independent financial advice and, in my experience, is more of a personal thing rather than an employee benefit.
All of the above can be facilitated by written communications, online modeling tools, reminders to those members approaching retirement. Many members greatly value attending presentations or one to one meetings with a pensions professional.
Jacqueline Conroy, senior consultant, Capita Hartshead
For many members, the ‘wake-up’ letter they receive six months before their retirement date is the first indication that they need to make some decisions about their pension. They often expect their employer to make the necessary arrangements and don’t appreciate the effect that lifestyle factors can have on their retirement income. While information and support at this stage can help members choose the best annuity available, it is too late for them to do anything if their pension falls short of expectations. Therefore, this needs to be part of an overall programme of employee engagement.
Pensions education should commence soon after becoming a member of the scheme (or, preferably, at school). Information should be provided at regular intervals, for example with, or as part of, annual benefit statements. Members should also be encouraged to use online retirement modeling and quotation systems so as to understand the effects of their investment choices, contribution levels and benefit options (tax-free cash, pension increases, dependant’s pension and suchlike) on their potential retirement income and plan accordingly.
Members who take an active interest in their pension during their working life are far more likely to shop around for a pension that suits their needs when they reach retirement. At Capita Hartshead we have found it particularly effective to have an easy-to-follow annuity purchase process in conjunction with clear information and readily available telephone assistance, with the outcome that many more members tailor their annuity to suit their circumstances.
Greg Thorley, head of employee communications, Standard Life
Most people approach short-term savings with a specific need in mind – a special holiday, university fees, a new car or for a life event such as a wedding. Consequently, they are focused on the outcome and are very aware of how to access their money at the end of the term of the contract.
When it comes to pensions there is less focus on the end game. The majority of scheme members have little or no real understanding of what to expect from their arrangement at retirement. The main reason for this is that most communications strategies are focused on overcoming inertia at the joining stage and not on helping people set realistic retirement goals. Currently, most members are not approached regarding income options at retirement until the end of their working life.
The education process needs to include a more holistic understanding of the retirement journey, which will include raising awareness of the need to review and increase contributions regularly and crucially, to understand how the vehicle works to provide a replacement income.
Member engagement increases with greater understanding and ownership, so the answer is to reiterate the choices that need to be planned for throughout the member’s journey to retirement and not just in the traditional actuarial sense, at the end.
Caroline Legg, associate, Sacker & Partners
It is important for employers and trustees to start the process of educating and informing people of their options at retirement as early as possible. Regular member communications are needed throughout a period of membership, in particular in the run-up to retirement. Members should be given good notice of the value of their benefits and information about their open market option, and assistance with how to seek advice if they need it. Trustees and employers should consider
arrangements to streamline the retirement process, and whether they can contribute to the costs of advice.
This is a noticeably unregulated area. The only legal obligation to provide information at retirement is to ensure members are aware of the open market option. But provision of information will grow in importance as the number of members needing to take decisions at retirement increases.
Better understanding by employers and trustees of their role and what they can do to help, is needed. The Pensions Regulator has published good practice guidelines on “effective member communications” and “member retirement options and the open market”, which is helpful to trustees and employers. These issues are likely to grow in importance, and what is best practice now be subject to closer regulation in future. It may pay to prepare for that now.
