Seems a stupid question to those of us involved in running defined benefit schemes. Pensioners of defined benefit pension schemes are the happy beneficiaries of their companies foresight and generosity in establishing and maintaining that pension. Organisations that have established defined benefit pensions know only too well that the open liabilities their current and future pensioners present are one of the primary risks the organisation will face over the decades to come. Boy are companies bothered about their defined benefit pensioners!
The same does not seem to be the case with regards to staff retiring from defined contribution pension plans. According to PICA only 33% of those in personal pensions take even the first steps to shop around for the best pension on the market. Even more disgraceful is that only 25% of people with defined contribution pensions looked after by occupational trustees take this first step.
To what can we attribute this staggering lack of financial prudence?
Some will argue a conspiracy theory from the insurers to ensure annuity rates are soft.
Some will argue that trustees are not properly trained to understand the issues
Some will argue that companies have no incentive to spend money on a life-event that falls , by definition, outside the period of their staff’s employment.
What has gone wrong that we have so lost the plot? The defined benefit and defined contribution plans set up by companies were set up to offer reasonable retirements to staff in turn for their loyalty and hard work. Pensions were never meant to be a millstone around a company’s neck, they were designed to enhance their reputations as organisations that one would want to work for and work for, for some time.
I am writing a report for my companies customers for whom we are looking to give an “at retirement” service for their staff.
That in justifying investing in this service we had to look in depth at its business justification is a scandal. It is sad that purely in commercial terms, our justification had to rely on the recent abolition of the normal retirement age to get this issue on company’s agenda at all.
Put another way, it is only because companies are seriously worried that they cannot retire out their staff at a normal retirement date , that they are getting concerned about the outcomes of the DC pensions they have paid so much into. Surely this must be wrong!
The good news is that there is a huge amount a company can do for its staff, trustees can do for their members.
They can make sure that 100% of their retirees are health screened to make sure that they are not missing out on the better pensions you can get if you are not in perfect health, live in the wrong postcode or have a family history of poor mortality.
They can make sure that staff are aware not just of the need to shop around but how to shop around, how to assess other retirement options including fixed term annuities and the various types of drawdown.
The really good news is that any cost benefit analysis will show that putting money into “at retirement” planning for retiring staff will show it has the highest ROI of any employee benefit.
The even better news is that happy pensioners are the greatest ambassadors organisations can have. They are the referral points for new hires, current employees and existing and prospective customers.
Pensioners are part of the shaping of a company’s brand.
Should organisations be bothered about their pensioners? Yes they should, and if yours isn’t, isn’t it time you looked at you’re “at retirement” policy for your older employees.
- Money makeover: Almost 30 and no pension (confused.com)
- Public-sector pensions (hr1services.com)
- Pensioners regret taking tax-free lump sum (independent.co.uk)
- Should you take tax-free cash from your pension? (telegraph.co.uk)
- Start Saving for a Pension Now (moneyexpert.com)
- Do You Have a Pension You Don’t Know About? (abcnews.go.com)
- Choose your pay cut – DC PVO1 (henrytapper.com)
- Retirement income worries ‘weigh heavily’ on pensioners’ shoulders (moneydebtandcredit.com)
- Pension Age Rises for Women (moneyexpert.com)