Frances Corbett: Staff facing pension freedoms choices – what can HR do?

In March 2014, the then Chancellor – George Osborne – pulled an unprecedented rabbit out of his budgetary hat when he announced: “Let me be clear: No one will have to buy an annuity”. This simple statement which heralded the start of pension freedoms had significant knock-on effects for individuals, companies and HR departments.

Complex queries

Prior to the introduction of these freedoms, the vast majority of people with a defined contribution pension purchased an annuity which provided them with a guaranteed income for life, while those with a defined benefit scheme received an agreed proportion of their salary. Naturally, companies’ HR departments were asked questions but they were much less complex than the current crop of queries.

Focus on facts

So what can HR actually say and do? The basic premise is that the HR department is not in a position to provide advice; rather they need to support people as they make their choices around retirement by focusing on the facts.

For example, it would be completely appropriate for the employer to explain to Bob that he could take a tax free cash lump sum of up to 25%. However, it would be inappropriate to suggest he repays his mortgage with said lump sum – even if this is the advice he eventually receives or an idea that he suggests.

Treading a fine line

As difficult as it may seem, HR teams need to tread a fine line and remember that ultimately, if something does go wrong, they – and the company they work for – will be liable if a person takes what they perceive to be their ‘advice’.

Companies are legally required to signpost employees to Pensions Wise, others are going further by providing employees with access to independent financial advice, but this is a benefit rather than a legislative requirement.  

Company policies

Thankfully, many of the questions that an HR professional may face are about company policies or simple facts. Can Alex take her pension and continue working in their role – in either a full or part-time capacity? What sort of pension does Sarah have? Does Bob have to take an annuity with his pension pot? All of these are relatively easy question to answers but they do need a degree of basic pensions knowledge and understanding of company policy and planning.

Following the introduction of the pension freedoms in April 2015, the vast majority of companies have faced some of these questions and have developed policies governing their approach. However, it is worth ensuring if you work for a smaller organisation, that this has been done and they are kept up to date.

Learning the basics

To bridge the skills gap and empower HR professionals, some companies are also sending staff on pension’s basics and retirement guidance courses – such as those run by the PLSA – to brush up on their basic understanding and avoid any potential pitfalls.

Ultimately, dealing with questions around pension freedoms will simply become a way of life for HR departments but it is important to have the right tools and processes in place.

This article was written by Frances Corbett, head of the PLSA Academy