I published a blog recently on the need for the DWP to take notice of the real concerns of the ASA. It got some really interesting comments made on various sites mainly opposing the ACA’s pessimism. Interestingly the pessimism of the actuaries mirrors the pessimism of the insurers a few years ago over the impact of NEST (which now is commonly perceived to be a basket case and no threat to their DC books at all.
The reason I think the comparison is apt is that the conversations we have had with employers looking to implement auto-enrolled strategies in readiness for their staging (some will be started this time next year) suggest the more employers think about things, the more they decide to go with the DWPs agenda and actually increase their pension spend,
I was talking to one pension manager who talked about the “new golden rule”. I asked him what he meant and he explained that he was being tasked with proving to his CFO and HRD that a corporate pound spent on an individual’s pension was equal in (shareholder) value to a pound spent on individual’s salary.
If you know a little about taxation you will know that in most cases the pound spent on pensions has a little less cost than that spent on salary because of national insurance (not relevent to pensions) so pensions get a little advantage from the handicapper (say 10 metres in a 100 metre race).
But from there on it was uphill all the way for the pension manager. Deferred gratification is not valued by an employer as much as immediate gratification, salary gives a choice (whether to save or spend) and most of all salary provides immediate protection against insecurity (boiler blowing up etc).
The Pension manager acknowledged that he wasn’t going to change people’s minds about spend and save but he pointed out that some of the more superficial reasons people gave for not spending on retirement, he could do something about and his strategy (very sensibly) was to do something about what he could do about.
Firstly he could do something to improve the perception people had about the was that his company‘s pensions worked. The perception was the key thing as his task was to prove that in terms of rewarding staff – a pension pound was at least as good as a pound paid in salary.
To improve the perception of pensions he was concentrating on three simple things.
- Make his workforce aware of the risks of investment (and how they could be managed) he was a firm believer in a default fund which he felt he could explain.
- Make his workforce aware of how the money built up would be exchanged for pension at the most advantageous rates for them at retirement
- Demonstrate to his workforce that his company had gone out and got the very best pension deal they could for their staff.
I found this approach so refreshing. Here was someone who had thought things through from first principles and had identified what was really troubling his bosses about pensions. He’d recognised the threat identified by the ACA and had decided to do something about it.
Right now the pension manager is in the midst of a huge consultation exercise with his staff that involves him going out and selling the pension pound against the salary pound. He’s even gone so far as to get the staff he talks to, to vote on whether they think they would like to have the next 5% of pay increases (over the next 3 years) paid to them as pension pounds rather than salary pounds.
I’ve no idea whether he will succeed. He reckons that the CFO and HRD will give in to his requests for more pension fund if hec an get above 50% of all staff requesting a pension pay rise.
My gut feel is that people will want the choice to be paid more in pensions and the choice to opt out of the pension pay-rise if they really need every penny for living expenses, have a proper source of alternative retirement income or are simply not bothered.
We hear very little about staff consultations of this kind. Normally consultations are about taking things away from staff (typically pensions) not about giving them more. Perhaps more organisations who are really worried about what the ACA are saying should test the waters with their staff.
Pensions are really about people not about balance sheets and profit and loss accounts and if we are to believe what we are told “that the company’s greatest asset is its staff” then issues surround pay and benefits need to rank high on the corporate agenda.
That the ACA believe that the pension spend is under threat says much about th pension industry’s lack of confidence in his product and it’s beholden on all of us to establish the new golden rule in the organisations we work for or advise.
- The man from OECD says “guess” (henrytapper.com)
- The ACA have spoken – the DWP ought to listen (henrytapper.com)
- Pension provision ‘damaging business insurance holders’ competitiveness’ (premierlinedirect.co.uk)
- The right to screw up your pension (henrytapper.com)
- Trade unions attack executive pension funds worth millions (independent.co.uk)
- Downturn heightens pension crisis (telegraph.co.uk)
- DC Trustees still valued but they need to raise their game (via Henrytapper’s Blog) (henrytapper.com)
- When we make company pensions compulsory.. (henrytapper.com)
- Good news – your pensioners are dying! (henrytapper.com)
- Pension saving continues to drop (bbc.co.uk)
- How much volatility can we take? Pension Play Pen Lunch Sept 5th 2011 (henrytapper.com)
- Tips for would-be pensioners (telegraph.co.uk)
- X Factor generation faces a rude awakening (telegraph.co.uk)
- What to do with pension trustees (henrytapper.com)
- The man from the OECD said “guess” (henrytapper.com)
- Downturn hits pension savings (lv.com)
- Some of our pensioners are unwell (henrytapper.com)
- IFEs not IFAs (henrytapper.com)
- Firms aim to cut pension costs (lv.com)
- The case for doing nothing (henrytapper.com)
- Buy-My-Annuity.com, DE Co. Able to Buy Your Pension Income Stream, Joins NEA (prweb.com)
- Personal pension contributions fall (mirror.co.uk)