For both DB and DC schemes, a member communication exercise should be undertaken; otherwise, members could lose out on valuable new options.
For schemes that have members with DC savings, including AVCs in DB schemes, retirement option forms need to be revised.
For members with DC savings, the ‘retirement journey’ is going to be very different. Employers and trustees need to start thinking about what this means for their workplace pension arrangements.
While over half (55%) of employers have either told their members about the pension changes or have plans to do so, this still leaves 45% who are either not going to tell members (11%) or ‘don’t know’ (34%). Although some of the detail is still awaited, it does not mean employers should defer communications to members in the hope that the Government’s voluntary guidance service will be sufficient.
JLT EB expects the freedom and choice reforms to increase DC scheme members’ interest in flexible retirement (i.e. taking benefits whilst remaining in employment), which highlights the need for employers to have a formal strategy in place to allow workers to retire gradually. It is thus a concern that over 80% of employers either do not have a specific approach for managing older workers (49%) or do not know what their strategy is (34%). As the UK workforce ages, employers need to have a clear policy and strategy for extended working lives.
The survey also found that just 18% of employers polled plan to review their retirement options before April 2015. Meanwhile, over a fifth of employers don’t plan to make a decision until 2016. While employers may feel comforted by the fact that legislation implementing the pension tax reforms is not even on the statute book yet, it is likely that there will be a huge demand for new retirement options from next April, with annuity sales already having dropped by up to 60% for some insurers.
JLT EB urges trustees and employers, in conjunction with their pension scheme administrators, to decide what they are willing and able to offer and to communicate it to members. Although, they are not required to offer every option, if they do not, members may transfer to another scheme, which will engender further challenges.
Mark Wood, Chief Executive, JLT Employee Benefits, said: “This year’s Budget saw one of the most far reaching reforms in pensions. So, although it was widely welcomed, it is putting a lot of pressure on the industry and employers, as well as adding complexity for individuals.
“Whilst the industry as a whole has been pretty good in adapting itself, a significant number of employers are feeling overwhelmed and unsure how to respond. However, kicking the can down the road isn’t necessarily the best option as employers have certain immediate responsibilities, such as communicating the changes to scheme members.”
*1)The 'JLT 250 Club' is a consumer group of around 250 leading companies who have agreed in advance to complete short YouGov surveys on topical pension issues. All organisations in the 250 Club have at least 500 full-time employees and most members employ more than 3,000 such staff. Also, nearly 100% are in the private sector (limited company or plc). In terms of the individual respondents, the vast majority are middle managers and above.
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