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17 Feb 2016
by Patrick Bloomfield

A year on from Pensions Freedoms it's time to take action

The overarching message from both The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) is “tell your employees about their options”. So if you’ve been pausing on pension freedoms and waiting for the market to develop, 2016 is the year to get on top of the risks.

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The complexity of retirement options has forced the regulatory focus to shift from “protecting members/consumers” to “empowering members/consumers”, particularly with knowledge about their options. 

This isn’t going to change, regardless of any wider changes we may see in the March budget, such as changes to pensions taxation. 

Employers are running a risk

A recent Hymans Robertson survey of HR leaders showed that 80% of HR directors think employees will expect employer support around their pension. More alarmingly, 46% think that employees will hold their employer responsible for their decisions. This means that pension freedoms are a live issue and businesses and scheme trustees are running risks, whether they like it or not.

So do employers really have a duty of care to employees with regard to pension freedom and choice? 

I would suggest that they do. By the time an employee has suffered pension loss and the event is viewed with the benefit of hindsight, there won’t be an easy answer to the question “was this loss foreseeable?” 

If we assume that employers do have a duty of care to employees with regard to pension freedoms, what should a responsible employer’s response be in 2016? I suggest these three steps:

Step 1) Engage with this issue now 
Give it prominence in your business plans.

Step 2) Take a strategic approach
Where do pension freedoms add value for your business? Enabling DC members to retire? Enabling DB members to make good choices?

Step 3) Find the right providers and services to manage your risks
Have a plan to keep abreast as the market develops.

The ability to retire your workers and manage your workforce is a massive strategic HR storm which is brewing due to pension freedoms. The combination of chronic under-saving for retirement and the removal of the default retirement age is leading to a generation of older workers who can’t afford to retire. And with that, businesses are storing up all manner of people issues cascading through the workforce.

Businesses need a strategy which supports employees with decision-making around pensions in the final years of work, and which supports them into and through retirement. This needs to include “telling employees about their options” and helping them to understand these to make good choices.

Employers need to be active consumers

The FCA and TPR are working with providers to improve the products and services available in the market. Employers also have a role to play, as active consumers. There are already some good products coming on-stream to help “at retirement” decision-making and more will follow.

The market will only be efficient and will only improve if the innovators and good performers are rewarded and drive out the lazy and underperforming. This means that employers should actively review their providers and be willing to move provider if they are not delivering. Employers shouldn’t be afraid to be demanding and challenge the status quo for improvements that are needed.

Make sure that by the end of 2016 you can say that your business “tells its employees about their options” and gives your employees the tools and support to make good decisions and retire well.

This article was written by Patrick Bloomfield, partner at Hymans Robertson.

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