Maximising workplace pensions benefits
In this webinar, Justin Corliss and Craig Muir, Senior Pensions Intermediary Development and Technical Managers, look at how to maximise workplace pensions benefits for scheme members, employers and advisers.
CPD learning outcomes - 50 minutes
- Describe ways to maximise workplace pension accumulation
- Explain strategies to achieve best member outcomes
- Identify different methods of employee engagement in workplace pensions
- What employers and employees value in defined contribution workplace pension schemes
- How advisers can derive benefit from establishing and servicing workplace pension schemes
- Key considerations when selecting or reviewing a scheme
- The role the Pensions and Lifetime Savings Association (PLSA) retirement living standards can play in workplace pensions
- The importance of strong employee engagement.
Hi, everyone, and thank you very much for your time. My name's Justin Corliss, and I'm joined today by my colleague, Craig Muir. And we're both big breath for this one, Senior Pensions Intermediary Development and Technical Managers at Royal London.
And today, we're going to look at workplace pensions and ways to maximise the benefit for all concerned.
And I do mean all, because while our primary focus is to achieve best possible outcome for scheme members, obviously, we're also focused on getting the best possible outcome for employers. And we're not forgetting that there are often financial advisers involved in the process, almost always, in fact, with Royal London schemes. So, we want to ensure that advisers derive benefit from both establishing the pension scheme initially and also servicing it on an ongoing basis.
Now, this presentation is focused on defined contribution or DC, workplace pension schemes. We're not covering the, all the public sector or a few private sector DB schemes that are used for automatic enrolment today.
So, we're going to begin our session by looking at what employers and employees value in DC workplace pension schemes. Now, later in the session will go beyond just looking at what they value in the pension scheme itself and consider other relevant factors that contribute to the overall benefits package offered by the employer. Will try to identify some key considerations when either selecting or reviewing a workplace pension scheme, before drilling down into some ways of maximizing an individual's pension fund.
And we'll do that by paying close attention to the Pension and Lifetime Savings Association or the PLS as we normally refer to it. And their retirement living standards as these are an excellent tool for workplace pension scheme clients who often won't receive face-to-face advice but might be very open to guidance on their pension, especially if it's well-structured and provided in a fairly easily digestible format for them.
Now, we'll finish by focusing on employee engagement. Now, everything that I'm hearing in the market at the moment suggests that there is a shortage of quality, skilled staff. And, therefore, recruitment and retention are likely to be higher on the agenda for more employers than we might have seen in the past employee benefits packages, including pensions, are hugely important here. So, we'll try to identify some good practice in this arena as well.
But of course, for this to be CPDable, we need to have some learning objectives, So by the end of the session, you'll be able to do all the things we can see here:
Describe ways to maximize workplace pension accumulation, Explain strategies to achieve best member outcomes, and to identify different methods of employee engagement in workplace pensions.
OK, let's start by getting straight to the crux of the issue, workplace pensions, and now basically an employee benefit that it's compulsory for employers to provide. Now, given this, it's hardly surprising that more and more employers are keen to maximize the benefit that they get from this monetary outlay that they have to make.
But, you know, part of maximising the benefit, involves ensuring that employees are aware of the benefits being provided, that they value the benefits being provided and that this awareness and perceived value is broadly spread across the workforce. So, let's begin by acknowledging, you know, where we’re at, we can see on the left-hand side there. 47% of employees in a recent of Aviva Workplace Pension Survey claimed that they don't know how to plan for retirement. In fact, you know what, in the same report, 42% said that they hadn't even started thinking about it.
And you know what?
If you're 23 and retirement is likely to be, whatever, 45 years off for you, I kind of get that.
But I also know that starting or at least not opting out in your early twenties, is vital to securing a comfortable retirement. So, we need to find a solution. If we can't make them love it, we at least need to find compelling reasons for them to do it anyway.
Particularly important, I think that point given the current cost of living crisis and the danger of more people, you know, considering opting out or pausing their contributions, OK. We also need to think of other ways to recruit and retain staff other than just by the pension, and we'll talk more about that towards the end of the presentation.
Moving to the central part there, 48% of workers surveyed in the 2022 Drewberry Workplace Pension Survey said they don't really understand how tax relief or salary exchange works on their or in their workplace pension, OK? So that's kind of what we're up against at the moment.
Now, if you work in pensions, that's both, A – hard to fathom but B - really easy to overlook.
These people need help, they're not likely to get face to face advice, so we need to find an effective way to get this information to them. But the final point here provides some hope, that, over on the right-hand side, 58% of employees, would like some help to better understand if they're saving enough for retirement.
And to be fair, I think, employers are ideally placed to provide this help in association with advisers.
You know, we spend a lot of time trying to find ways to recruit and retain quality staff, so, anytime we get thrown a bone like this employee saying, this is what we'd really like, we need to sit up and take notice.
Now, it's also interesting to see what your peers in the advice industry say a scheme absolutely needs to have and this is from Corporate Adviser’s 2021 Workplace Pensions into Retirement Report. And considers the functionality the scheme needs to have to meet the needs of the employees. Now, as you can see, the absolute top priority is partial tax-free cash withdrawal, closely followed by partial uncrystallised pension lump sum, and flex-access drawdown.
Now what I found interesting, when I first looked at that, by the way, that's pensions interesting, not real life interesting, but we'll go with it for now, is that all top 4 all relate to the retirement functionality of the scheme. Now, most contract-based workplace pension scheme, what would have previously called a group personal pension, will offer all 4 of the certainly the top 3 anyway, but that's not the case with every Master Trust.
Now I'm not trying to bash Master Trusts here, but that is simply the case. So, it's definitely worth checking the at retirement functionality of any workplace pension solution, as your peers are saying that this is what's important.
Now, remember, the first automatic enrolment schemes were put in place around 10 years ago now, and during that time, you know, we've certainly witnessed a change in the market.
For a number of years, the focus was on getting to grips and complying with the rules, but you know what? Most employers and advisers, and providers, all seem to have a pretty firm handle on that now. I'm not saying there's never things that go wrong. There are occasionally, but, by and large, everyone seems to have a pretty firm handle on the nuts-and-bolts rules there.
So, the focus seems to have changed in the last sort of 3 to 4 years, since the end of the staging period, to the quality of the offering as a tool to attract and retain the best talent. Now, due to the charge cap on default funds, and suppose probably ongoing competition as well, they're often aren't huge differences in many of the pension offerings themselves.
Don't get me wrong, obviously, some are a bit better than others, but there often isn't a huge difference.
Today, what sometimes goes a long way to separating the good from the run of the mill is often the extra benefits that are separate from the pension itself, and we'll talk more about that when we look at employee wellbeing shortly.
And, when we look at what's important to employers, OK, it seems this is changing to even just over the last couple of years. And it's the middle two bar charts that I'm focused on here. It seems that employers are focused on outcomes for employees. In this one particularly, delivering a sufficient pension fund and remember, that's going to involve a lot more than just the pension itself.
For example, helping them, know what the fun needs to be, what they need to contribute to get there. What about some, you know, lifestyle help to help, to help ensure that they can continue working as long as possible, to build up that fund, those sorts of things.
Now, in 2020, only 29% of employers said they focused on delivering a fund that allowed employees to retire at a reasonable age and by 2022, that had risen to almost half to 46%. That's a pretty significant jump.
And this one goes the other way, but the message has gone to the same in 2020, 44% of employers surveyed said they just wanted to ensure that their pension offering was better than the competition. And that's compared to only 28% targeting this in 2022.
So, employers seem to be more aware that they're offering needs to genuinely help the employee not just be a little bit better than the competition. Might be realizing, you know, there's not a lot of merit and being the tallest man in Lilliput.
What we'll see in a few slides time though is that around two thirds of employers don't know the likely outcome for a lifetime member of their scheme. So while we do seem to be moving in the right direction and purpose is increasingly driving behaviour. I don't think anyone could say we're quite reached the point that we need to be so still a little bit of work to do yet.
What I am confident in saying though, is that by any measure, and based on any statistics that I've seen regarding workplace pensions, 3% employer plus 5% employee is not likely to be enough. The common figure, I see bandied around as, you know, at least 12% in total. And even that depends on when you start your savings journey. I think it's safe to say that most people would benefit from paying more.
Now, just before we got one and look at some aspects of workplace pensions in a bit more detail, let's look at some of the key points you might want to raise with employers when discussing the suitability of their existing workplace pension arrangement.
So, looking at this first one here, how well does this scheme help members achieve their retirement goals? Is there guidance around how much they'll need to save for the retirement they expect or on other aspects of financial well-being. So, they're in a position to allocate funds to long-term saving.
Is the default investment option suitable for the employer's workforce? Now this is huge is around 95% of workplace pension members sit in the default option, it needs to be robust and transparent, and it needs to cater for the whole workforce. Now overlay that with ESG, environmental, social, and governance considerations, And of course, the need for shariah compliant funds and you can see that this issue will grow and grow and grow as time passes.
Does this scheme work as a tool to attract and retain the best employees? Is it giving employees what they want and need or is it just ticking the box?
I think this is a huge point, OK workplace pensions are a significant financial outlay for employers so you know it would seem to make sense for them to gain some advantage from that outlay where possible.
What retirement options are available? Now, we've just seen that adviser feel that their certain things a workplace pension scheme needs to have a guide, pension freedoms, bit of a game changer for DC pensions, and I don't think employees to expect all this functionality will be available within their workplace pension.
And then the last point that I'm going to touch on just here is. Is the scheme cost effective as possible? And I do mean cost effective, not just cheap, OK, obviously nobody wants to pay more for something than they have to. But due to the 0.75% charge cap on workplace pension default funds, pricing differentials can be quite small. OK.
Remember a scheme with an annual management charge of, let's say, 0.5% that does everything that the employer and the workforce need to do at no extra cost. And I include a broad focus on employee wellbeing there, OK.
So that this is a scheme that does very little, let's say, and annual management charge of 0.45%, it's just slightly cheaper, is only pushing the cost for a client with £50,000 in that fund by £25 per annum. So, I guess the point there is just to make sure that what we're assessing is value not just price.
OK, what I'm going to do just now is I'm going to hand over to Craig Muir. He's going to take you through the next section of this presentation. So, over to you.
Thanks, Justin. OK, now I want to think about how they can achieve the best possible outcomes for pension scheme members, and something that can really help with us as the Pension and Lifetime Savings Association Retirement Living Standards. For many workplace pension members, the million pound question is, how much should I be saving into a pension?
Although, you'll be pleased to hear that for most people there isn't a million-pound answer, but as you know, the answer is more complicated than most people think. Therefore, the challenge is to be able to simplify the answer to point people can grasp it and run with it.
The ideal process maybe to carry out income expenditure analysis, which can then form the basis for a realistic discussion around expenses that will still be present in retirement And then that in turn should lead you to the retirement income needed.
Now assume for a moment that client has no defined benefit pension, you then calculate the defined contribution lump sum needed to produce a sustainable income equal to the retirement income needs. You would also build in the role the State Pension plays, as for many people, it's likely to be the biggest source of income in retirement.
That's all well and good for clients who have an adviser to map this out for them and help them to understand the amount needed to achieve it.
But there are two key things we need to consider in this discussion.
First up, we know that most people, even those in workplace pension schemes, don't have the benefit of face-to-face advice to help them with us.
And the second point we need to appreciate is that many non-advised people struggled with us. Even that first step of working out the income needed in retirement may be a bridge too far for some people. For too many of them, it's just too hard, so they don't think about it.
In fact, when Aon introduced their DC Pension of financial wellbeing employee research in October 2021, they highlighted that 71% of people had not set a goal for how much they need to save before they can retire.
Now, that was based on responses from over 2000 employees. So, it's not an insignificant sample group.
Just 37% felt that we're currently saving enough for the long-term needs, and over a third said they could afford to save more, but the majority saved by following the contribution rates set by their employer.
In fact, research contained at a recent policy brief from the Institute and Faculty of Actuaries found that 70% of UK workers who were in a workplace pension scheme contribute the bare minimum into their pension. And that scares me. Many industry commentators of called for the contribution rates to increase. As did the DWPs Automatic Enrolment Review back in 2017 as there is considerable evidence that 8% of qualifying earnings as a contribution, simply, isn’t going to be enough for people.
But, as we know, there's nothing about that, in the Queen’s Speech in 2022, which contained a huge number of bills, so, there's are unlikely to be any legislative change around us in the foreseeable future.
So, one potential solution to this, or at the very least, subsidies a partisan, are the PLSA’s retirement living standard figures, as these can remove the first step, by giving an indicative retirement income need, is this better than a bespoke plan for the individual. No, of course not. Is that better than nothing? Yes, definitely.
But back in October 2021, the PLSA increased the values of the Retirement Living Standards. And that was to deflate what was the market at that time. And it's these updated figures you can see here.
Now, obviously, the cost of living crisis and the high inflation will have an impact on these figures. But this is what we've got for now. And I've no doubt the PLSA will produce a further update as soon as possible.
Just as a reminder, they created these living standards to help people picture what kind of lifestyle they could have in retirement.
The standard show what life in retirement looks at three different levels, you can see along the top there minimum, moderate, and comfortable living. And what a range of common goods and services would cost for each level, which you can see underneath. They further split this down to values for singles, couples, and for living in or outside London. And what you're looking at here are the figures for couples who live outside London.
I think that probably the retirement living standards, and why isn't given people a real sense of their likely expenses in retirement. And, therefore, the likely level of income needed.
So they’re particularly useful for members of the workplace schemes you manage who are less likely to get face-to-face advice, but who do need some kind of guidance to meet them most of their pension saving.
Just for completeness, here's the equivalent figures for single's outside of London.
Right? OK, so what I've done here is I've put all the moments into the table, so you can see the equivalent figures for inside and outside London for single people. We don’t have time look at all of them. So I'm just going to focus on the moderate outside London, which the PLSA estimate will require an annual income of £20,800.
Now hopefully the clients all received the full New State Pension. And, of course, you can get them to check how much they're likely to receive using the Government State Pension Forecasting Tool on their website.
In 2022-23, the full new State pension, is £9660.86 per annum.
So you can work out what the shortfall is by the State pension off, which is what we've done here so the shortfall is £11,139, but, you know, even if your average Joe or Joan can identify the retirement income shortfall they have, I’m not sure they knew how to solve it. So let's see how we can simplify that part for them, too.
To keep this as straightforward as possible, look, I've simply assumed a 4% yield is sustainable over the long term, so I've converted the shortfall in annual income to a lump sum by multiplying it by 25.
If you think 4% is sustainable, well, that's fine. Just use a different figure. So 3%, for example, can be capitalised by multiplying the shortfall by 33.3.
Wonder if this is something advisers could create to go on a scheme website or similar, because it gives further meaning PSLA figures for employees who, as we mentioned before, are less likely to be getting face to face bespoke advice.
Guidance is critical for these people, so anything you could do to simplify things and enhance that understanding will be hugely beneficial.
So, we use 4% is a sustainable rate than someone single living outside London, who receive a full new State Pension, looking for a moderate income level in retirement, they would need to amass a pension pot of approximately £270,000 in today's terms to achieve this.
Now, to you, as financial advisers. A pension pots of £548,000, sounds like a reasonable figure.
It's a pretty decent pot, but it's hardly off the scale for the people you deal with on a daily basis, are generally a bit wealthier than the average but, we also need to bear in mind that the median pension at 65 is around £81,000. So, clearly, many people aren't getting anywhere near this figure.
So, what I wanted to do over the next few minutes is just outline a few simple messages that might show some of those non-advised clients, or guided clients, some ways to make this more achievable.
These points will also be of interest to employers who really see the employee benefit package, and the pension will be a major part of this, as not just something to pay lip service to but a vital tool to attract and retain talent.
Guess the easiest way to do this is to use a case study, So, let's meet Jane, here she is, she's 37 years old, she lives in Birmingham. She's just started a job earning the median salary for the full-time UK adults, which is £36,000 per annum. Now, Jane did work for a number of years after finishing an apprenticeship, but she's just re-entering the workforce after a 12 year break, raising a young child.
Now her child is in high school, she returned to work, that has been automatically enrolled into a workplace pension scheme, and this has got Jane thinking about her retirement provision.
Automatic enrolment wasn't in place when she last worked, so she currently has no private pension at all. Although, she did receive National Insurance credits for the time she was raising a child. So, she's on track for the full, new state pension.
Ideally, she'd like to retire at 67 or state pension age.
Actually, that's not true. Ideally, she would like to retire at 38 to a large mansion overlooking the water in Monaco. But as she understands, there's a chance you she won’t win the EuroMillions before her next birthday, she'd like to create a plan to retire at 67.
Now the welcome pack for her employer's workplace pension scheme makes reference to the PLSA's Retirement Living Standards and having looked at them, she feels the moderate level, living outside London is the most suitable for her.
For further investigation of her workplace pension website, she sees that she's likely to acquire a pension pot of around £278,000, but she doesn't really know what's required to get there.
Her first instinct, as it would be for many people, it's just simply divided that £270,000 by the 360 months or 30 years, She still has until 67, but then that suggests she needs to be pension contribution of £770 a month, but not just doesn't seem affordable at all.
Of course, we all know that it won't really be that figure, as doesn't factor in any growth in the funds or tax relief or employer contributions. But I'm not sure that will be immediately apparent to everyone in Jane’s situation.
So what guidance could Jane get, possibly, from her employee's workplace website to make this seem more achievable, because that moment, it seemed hopeless to her and she's ready to give up and not bother doing anything at all or possibly even opted out of pension saving altogether.
Aside from that, likely to produce a poor outcome for Jane is bad news for employer, too.
If an employee doesn't avail themselves of any of the employee benefits and offer, then retaining them often becomes a salary race, and that's a hard but costly race to keep winning.
First thing to highlight, and not just Jane, but all pension savers as start early.
So ideally, you would have some sort of cost of delay calculator or an illustration on the website.
Listen, I'm not gonna labour the point too heavily as one of the key features of automatic enrolment is that people are automatically enrolled from the age of 22, and then they need to opt out if they don't want to participate. So, these days, most people do start quite early, in the reality is, there wasn't really an option for Jane to start any earlier than she has.
There's probably many people in a similar position to Jane in fact.
But advisers do have a role to play with guidance here, firstly, dissuading, younger employees from opting out
We've probably all used the phrase that the first pound saved, is the one that grows the most so the earlier the first pounds paid the better.
Secondly, encouraging younger employees to opt in, because if they opt in, the employer needs to make a contribution, as well.
For all, but the very lowest earners, entitled workers and what misnomer that is given their title to very little, are compulsory.
In fact, one of the key points from the 2017 Automatic Enrolment Review was reducing the minimum age to be an eligible job holder from 22 down to 18.
But there's still wasn't a definitive date for this to happen, and we'll consider this again later in the session.
And finally, and this isn't really an automatic enrolment point, but does tie in with starting pension saving early, if any of your clients are in the fortunate position of being able to make a pension contribution for someone else. So perhaps a child or a grandchild.
This could have multiple benefits, even when £3600 per annum, gross is paid from birth to age 18 on behalf of a child at a 5% net growth rate.
The fund would be over one million pounds at age 65, and that's before any contributions the member makes themselves. Imagine that would see you into a nice nursing home wouldn’t, anyway. Back to our main point. The table on the right it crudely shows the benefit started 10 years earlier.
As you can see, it's quite significant.
It shows the different fund values changed Jane would achieve starting, now and saving until 67, compared to delaying her start for another 10 years.
So, while I appreciate, we can’t pop Jane in a time machine and go back 10 years, we also need to ensure she start saving today and doesn't put off for another 10 years.
Next point to raise is around employer contribution matching. When your employer pays into your pension, it's free money. You know, there are very few instances where it's not a good idea to take it.
Obviously, this is something advisers need to discuss with employer clients, as well, as not every employer wants to do this, and even for those that do, there's likely to be limit.
However, if the employer wants to attract and retain talent, and want to have a better offering, and for their employees to have a good retirement fund, you might need to highlight the massive difference employer matching can make. This graph makes it very obvious: what the differences between Jane simply contributing automatic enrolment minimums which is the green line at the bottom. And that amounts to approximately 150,000 over 30 years, versus 8% matching over the next 30 years, which is the red line at the top.
And that produces just shy of £300,000 over the same time so that's double. That's significantly different outcome for Jane.
And findings from the Aon DC Pension Scheme in a Financial Wellness Survey. Show, this isn't pie in the sky stuff, and given on showing this pie chart, I think you'll agree. That's comedy gold right there.
Anyway, the point is, 71% of respondents said that they had partaken in employer contribution matching and that's pretty high that we do have to temper that with the fact that Aon will be looking after larger employers. So this might not be typical across the business community.
That being said, smaller employers are still competing against larger employers to attract and retain the best talent, so, you know, it still has relevance.
OK, so, we've considered starting earlier, and employer contribution, matching, next point, I want to touch on, is, using salary exchange or salary sacrifice. Now we do a bit of a deeper dive into salary exchange, in another workplace pension presentation we have, and we also have a considerable amount of information about the this on our technical central website. So, I don't want to give you chapter and verse are, and how this works just now. Except to say, using salary exchange can produce a bigger pot at the normal retirement date, than not using it.
If you do want further information on the details of how it works, just speak to your usual Royal London contacts and you can ask them for the salary exchange guide.
Given the current concern around people opted out due to high cost of living, It is worth noting that salary exchange can be structured to increase employee take home pay and reduce employer cost.
But that's not what I've modelled here as I'm trying to show the fastest way to build up a pension. So, I've assumed both the employee and the employer National Insurance savings are all redirected to Jane’s pension pot.
As you can see, over a 30 year term of doing this the fund value and the 8% matching option is £311,000 when salary exchange is used, and £293,000 where it isn't.
So, even if the employee won't play ball with the contribution matching, but employees still piece 8%, it's the difference between £219,000 if solid exchange is used and £202,000 if it's not.
Do remember if they are with salary exchange, that it's really important to get it’s payroll involved early, to see if they're able to facilitate it. It saves a lot of hassle down the line when any limitations of payroll are identified early. Don't let that put you off, though.
I know advisers who structure salary exchange in such a way that saved employers thousands of pounds a year while still seeing more go into the employee's pension pot.
But even with all these helpful ideas, the fun while you needed a NRD can look a bit daunting, perhaps, even an achievable through some people. Particularly at the start of their careers when their earning aren't that high.
So I think the concept of escalating premiums is absolutely vital here because it can make all seem a lot more manageable.
And there's two aspects of this I want to consider.
The first is our first bullet point. If contributions are, set, as a percentage of salary then as salary increases, so, too, does the pension contribution.
While this does create a hedge against inflation it doesn't change the fact that if you're following the automatic enrolment minimums and only paying a 5% employee contribution than although, the figure of your contribution is increasing, you're still just paying 5%.
Quite frankly, 5% probably wouldn't be enough for most people.
So, this leads us onto the next part: Increasing pension contributions with pay rises. So, for example, you may be earning £36,000 per annum, and ping 5% of salary as a pension contribution. But when you get a 3% pay rise, you increase your contribution rate to 6% of salary.
Now this appeals to many people as you can often structure the increase so although your contribution rate increases from 5% to 6%. It coincides with a pay rise, so your take home pay is still increasing.
This an area where I think advisers and employers can work together to really make a difference because I suspect very few employees were genuinely do this unprompted, so something advisers can do, which might not seem not that sexy, but could provide huge benefit to employees, is to help the employer with marketing materials around the time of pay reviews to promote the idea of increasing your pension contribution.
Now, the graph shows the difference for Jane paying between 5% or 8% of salary over a 30 year period versus increasing it by 1% every 5 years, So, not every year, just every 5 years.
As a final comparison, before we move on of Jane sticks with automatic enrolment minimum. So, a starting premium, or just take home pay for Jane or £420 a month. It will project £146,574 at age 67.
If Jane pays the maximum, 8% their employer will match with salary exchange and assuming that every five years she increases or contribution rate by 1% along, beside a pay rise the starting monthly premium or to just take home pay as £182
So, it's nothing like the £775, she originally thought it might be, And that will project to £352,755, each 67. And that's well over the £279 that she was aiming for.
And actually, not even know the difference between 5% and 8% contribution from Jane is around £60 a month.
Let's look at a final option, and assume the employer wouldn't play ball, and stick with their 3% contribution.
But Jane still starts with 8%, using salary exchange, and increasing 1% every five years, at projects to just shy of £261,000, which, you know, what? That's not a million miles from the £279,000 she was looking for.
It doesn't quite get there, but I think the important thing here is, this is within Jane’s control and doesn't require any additional outlay from the employer. So, I hope this has helped demonstrate what the PLSA Retirement Living Standards can do. And why it's so important if we can get this knowledge and understanding across to those in workplace pensions who are less likely to receive one to one advice and are absolutely relying on this type of guidance to achieve their goals.
I know that not every workplace pension client will be able to employ all of these measures, but as I hope I've demonstrated as I've gone along, each one has its merit.
Yes, it'd be great if you could implement each one, but the message needs to be to ensure you employ whatever means possible and these little nudges are all things that you in conjunction with your employer clients can do to help clients achieve their goals.
If I explain to employees like Jane, how using the simple options can meet the contribution rates more affordable, can reduce their stress and also improve their financial wellbeing.
Just to finish this section off before we move on and look at employee engagement in a bit more detail.
While significant strides forward have been made, one remaining hurdle is that 63% of responding schemes don't know or don't identify the expected outcome for a lifetime member of their scheme.
And that does make it difficult to measure objective, of improving member outcomes. So that's an area most schemes have some work to do. And what is encouraging is that PSLA Retirement Living Standard seemed to be emerging as a primary tool, for those that do, access and predict member outcomes.
It might be worth considering whether the provider you're using or planning to use, can help identify the expected outcome for the average member in the scheme. Or groups of members, as this makes it a lot easier to demonstrate likely outcomes, and therefore good value.
OK, I'm gonna pass you over to Justin. He's going to take you through the next section.
Right, as we've mentioned a few times already, employers are always trying to attract and retain the best talent. And, clearly the pension scheme is a key part of achieving this, but, as you know, virtually all employers have to provide pensions. So, perhaps moving forward, we're going to see the other non-pension benefits which form a part of the overall workplace offering as just as significant a differentiating factor.
And some of the figures here backup why employee wellbeing is so important to employers. Now, according to this report from Salary finance, 36% of employees they surveyed worry about money, and that is higher than any other single factor, and we included relationships and health within that.
And of course, this survey was from you know, a couple of years ago, what the data was collected at least a couple of years ago, so it's likely these factors are likely to have worsened over 2022, with the cost of living crisis, as well. You know, it impacts their effectiveness of work resulting in over 20 days of lost productivity per annum on average. It results in an increase in workplace tension with other employees.
And makes those suffering from money woes 1.5 times more likely to move jobs and the estimated impact of all this for employers is an increased wage bill cost of 9 to 13% once lost productivity and increase recruitment costs are factored in.
The evidence is pretty compelling that having a happy and engaged workforce is beneficial, both to the employees themselves and to the employer. But as we've already touched on, most employers have to provide pensions now, so it's reasonable to assume that provision of workplace pensions alone may not be enough to help employers attract and retain the best talent in every instance. So it's helpful to have a quick look at some of the other things employers may want to adopt to make working for them a more attractive option.
So I just want to spend a couple of minutes looking at some of the things that could be included as a part of an employee wellbeing package. The trick, as we've mentioned a couple of times already, is trying to find different things that will appeal to the breadth of the workforce and engage those the pension might not reach, you know, as important as pensions are if you're in your 20’s and I have 30 plus years to before you can even access it, like I am talking early access there.
Then just not opting out of pension saving might be the best that we can hope for with some people. So, we need to find things that are relevant to their current life stage and while I’ve just given the example of younger clients, they're not the only ones who might be disengaged from pensions.
So, if we begin at the top there with this state pension now, as we saw earlier, we know how important the State pension is to most people in retirement, but it's not terribly well understood. So, a link to information on the State pension is likely to be useful to employees of all ages. Younger employees might be interested in how you claim National Insurance credits for periods that they're off work. Perhaps child caring duties, for example.
But people of all ages need links to the state pension forecasting tool, information on buying back missing years of National Insurance contributions, how the new state pension interacts with the basic state pension, that sort of thing. And this could be part of your employee wellbeing site.
Now moving clockwise around, the next one is fairly similar, claiming benefits. Now, once again, for younger clients, information around child benefit application, and the importance of triggering entitlement to 12 years of National Insurance credits worked for Jane, could be useful.
But employees of any age might be dealing with, you know, a range of issues, either for themselves or for their loved ones.
So, guides on things like divorce, or bereavement, what to look out for in any entitlements they might not be aware of. You could have guides on the importance of things like wills and power of attorneys.
The latter of those has increasing importance with an aging population, many of whom will have drawdown policies and continue have them into their advanced years and they require ongoing decisions to be made. So, as you can see, it's not always about claiming benefits for themselves, but sometimes these scheme members being tasked with doing it for aging relatives on, on subjects that the scheme member might have little or no, real knowledge of. So, there were just a couple of ideas that really help employee engagement and wellbeing, but don't necessarily require much if any, financial outlay from the employer.
Now, moving around further to lifestyle perks. These are some of the more traditional ones, which are often available in larger workplaces. So here, I'm talking about things, like, cycle to work schemes, retail discounts. I'm not gonna spend a lot of time on that as I think the information on these is pretty readily available if you search for it online. But it could also include things like season, ticket travel loans, you know, if the employer was willing to facilitate something like that.
So, the next point is around protection and workplace protection policies. And if we look at the findings from this survey of readers of employeebenefits.co.uk, from February 2020, we see the main group risk benefits, and the proportion of employers offering them. Now, as you can see at the top is group life assurance, or group death and services, you often hear at called, and a whopping 80% of responding employers offer this to all of their staff.
Now, the first thing to say is, if you have an employee, a client that doesn't offer this, then they're significantly in the minority, that could be a risk to the recruitment and retention of employees. Now, the other main point to consider here is how much, and that can be a massive differentiator, especially for, let's say, employees who have might be underlying medical conditions, which might make obtaining private life assurance, expensive, or perhaps even impossible.
There's often a free cover limit within group life plans. And that's a level below which no underwriting is required, now, even for employees with no underlying medical conditions. An employee or offering a different service plan of, say, 8 times salary is likely to be more attractive than one offering, 2 times salary. And if that's something your employees value, it might be a relatively cost effective way of improving a workplace pension offering, or if you are encouraging your employer clients to improve that for their employees.
Now, looking at some of the other options further down the list, and moving our focus from those that do offer. Some of these to employers that don't like take critical illness, for example, which I'll just highlight there for you now.
As you can see, on the right, OK, over half of employers don't offer this. So if your client does, they're likely to be in front of the game with regard recruitment and retention. Now, we'll go through the rest, but one really important aspect to get the biggest bang for your buck here, is to ensure that your employer clients engage with the workforce to see which benefits they feel are most important to them, OK?
There is no one size fits all here, it will differ, depending on the demographic of your workforce, your best serve, to speak to them, to find out what they want. Maybe you could give some suggestions along the way. Now, from an adviser viewpoint, OK, there's an ongoing need to review many of these benefits on a regular basis, and often to rebroke to a more suitable offering, which obviously is likely to generate remuneration for advisers.
So just another reason that you might want to get more heavily involved in that, OK, back to the wheel of workplace wonder there. Now, we come to the financial health check and guidance.
Now, I've never really been convinced that robo-advice will replace full bespoke financial advice with a living and breathing person, certainly not with the technology level but we have at the moment, people’s individual financial circumstances adjust are too nuanced for it to work effectively.
But for those people who are unlikely to receive bespoke financial advice, I think robo-guidance absolutely has a place. And I can see huge benefits in a financial wellbeing site, having access to a tool that takes clients through a list of questions, which touch on different aspects of an employee's financial wellbeing, highlights areas that need attention, and then, proposes steps the employee could take to address these issues. I think that would be advantageous to employees and could promote engagement with their financial wellbeing, OK? It's all about touching on matters that are important to them at whatever life stage they're in.
Now, remember, our stat earlier showed that more than half of employee surveyed, would like some form of help from their employer to improve their financial situation. OK, right, OK, if I'm not careful or go off on a tangent and I'll talk about this all day, but if you do what further detail on this, speak to usual Royal London BDM as they'll give you chapter and verse on all of this stuff.
Anyway, onto our last point there, workplace savings, then, obviously, the long-term savings box is ticked by the pension, which, as we've discussed, pretty much all employers have to provide.
But, what about a vehicle for shorter term savings goals, ISAs, for example, you know, in a comprehensive package where robo-guidance tools highlight gaps in the employee's financial wellbeing. It makes a lot of sense to have the solution included in the suite of products offered. It can help establish good savings habits, especially if the money goes directly into the ISA and never hits the employee's bank account.
Perhaps there could be guidance on the investments to use or may be an option to invest in the same funds that your pension uses. So, just a few ideas there, and some of them, up, most of them, in fact, don't necessarily have to involve a lot of financial outlay from the employer.
I really think that moving forward, the quality of all the extra parts around the pension might distinguish a great employer from an average one, as much as the pension itself does. Now, I've purposefully not gone into aspects, such as additional leave, flexible working, carer's leave, that sort of thing.
Now, while I think these things can be hugely beneficial as a recruitment and retention tool, they are a bit more costly than most of the things I've raised. So, they're a conversation for advice is to have with the employer. And of course, not all employers are going to be open to this. So yes, those things are important. They are something to explore. But they're probably a little bit too nuanced for our discussion today.
OK, here are a few things that you might want to consider, and the frequency with, which they used, now I've highlighted the financial education here, both because it's pretty, you know, it's already pretty popular with, you know, you can see on the left-hand side there, 33% of businesses saying that they already offer this to its core staff. But that's even more importantly, it seems to be the direction of travel.
If you look on the far right-hand side, you'll see 22% of employers surveyed said that they intend to introduce a financial education system and, you know, in the foreseeable future. And that is considerably higher than anything else that gets a mention down that right hand side plan to offer sections. So, seems to be the direction of travel, doesn't it?
There's something else, which can really help with employee engagement. Is bespoke communication material.
Now, although I really try to, in these presentations, not to get to Royal London, can't very well, you show you very well show you what other providers have to offer. Can I? So, yes. These are Royal London examples. Now, there'll be different levels of branding for different screen sizes. I don't work in sales, I'm not that close to the side of things. So, you'd need to speak to usual Royal London contact to get all of the detail on that, but, you know, it can create a sense of belonging, particularly if it's branded, you know, with the company's logo, and can help to engage some of these workplace pension clients. Now, perhaps, the most powerful pension engagement tool, though, is a smartphone app.
Now, once again, I don't have much other option to show you the Royal London app about not any particular policy. It's just a dummy one there. But, as you can see, it enables the employees in the scheme to see what's been paid into their plan.
Where it's invested, and how it's performing annual statements, what it could be worth in the future, shows ProfitShare, but that's more to do with us being a mutual.
So, they won't only to have that, obviously, know, it needs to be simple and straightforward to use, and updated with new material on a regular basis. It needs to enable clients to carry out the most common tasks they need to do, and to provide outputs that they understand. And do you know what the app can also be? The link to the wellbeing site two. And the reality is, today, if you want people to look at this stuff and engage with it, and we're not just talking about the millennials, let's be honest, probably anyone, Baby boomers and younger guy, you need to have an accessible via a smartphone app, OK,
That is just the way that people choose to look at things, they look at it in their leisure. They spend their leisure time with a phone in their hand. Only having it available via desktop probably isn't the way forward.
OK, I'll finish this section with a quick focus on MI management information. Now, a scheme governance report helps you to know how a scheme you manage is performing, it includes lots of useful information about the scheme, as well as details about the individual members. It's produced for you, the adviser, free of charge, and designed to be used with the employer. Now, when truth, I include this one here. Not just to show you how good the Royal London scheme governance report is. Although, I think, you'll agree when you see that. It is very good now.
Instead, what I'm trying to demonstrate here is the absolute importance of being able to get strong, consistent MI. From whichever scheme you use for workplace pensions, OK. Employee engagement is important and clearly that's something we're trying to help you to promote you know via this presentation.
But I'm also a realist, and I appreciate that most people tend to engage with the pension side of all the things we've looked at today more as they approach retirement. So, you need detailed MI on members approaching retirement, they’re fund value their investment performance and things like any transfers in to provide you with the information you need to engage with members when they're ready to engage.
Now if you can't get something like this and we're not the only ones who have something like this, but plenty won't. But if you can't get something like this, then you need to ask yourself how you going to gather the information you need to engage efficiently with these clients.
OK, um, I'm just going to now pass you back over to Craig to take you through to the end of the presentation. Thanks very much for listening to me, but over to you, Craig.
Thanks, Justin. Yeah, I just want to finish off by looking at some future considerations, which are likely in the workplace pension space, and first up the net pay issue. Well, that's kind of been sorted. Currently savers whose earnings fall below the personal tax threshold and are members of Master Trust net pay schemes. They lose out on 20% tax relief which is automatically applied to savers in relief at source schemes.
Now to address that addressed the net pay anomaly, the government stated in the budget speech in October 21, those impacted will receive a 20% top up to contributions from April 2024. So, yeah, very good. According to the Government, that will benefit around 1.2 million people by an average of £53 per year and 75% of people affected are women.
But what’s slightly disappointing as the first top-up won't actually be received by members until the 25-26 tax year and also there's no back data for the years of the missed tax relief.
As I said, this issue has been fixed sort of.
Next one has been on the backburner since 2017 it’s a reduction in the qualifying criteria and we were expecting the changes from mid-2020, but now it seems unlikely no.
But, just as a reminder, the proposals, the DWP, we'd like to see the minimum age for automatic enrolment reduced from 22 down to 18, and also, the removal of the lower earnings limit. So, that contributions would be based on earnings from pound one, both of which? This could potentially come with some cost employers, so it's worth just keeping your eye on the ball with these ones.
Finally, what's up happening with the pensions dashboard?
Well, there's been a delay to the introduction to the pensions dashboard. I know what you're thinking. I can't believe it or not a delay.
When will pension schemes need to comply? To be honest with you, it's not a big difference. So, this is the current timeline.
State pensions, they'll still be available from day one.
Both Master Trust and contract based schemes for automatic enrolment with 20,000 plus members have a start date of the 1 April 2023, but Master Trusts must comply by the 31 August 2023. Whether if it’s a contract based, have an extra month, which is to the end of September 2023. So, it's been an extension of two months.
Large schemes that shows with 1000 plus members up to 19,999, they have a year to be added, and that's from the 30th September 2023 to September 2024.
Public sector schemes, they've been given an extra 4 months to comply, saw their window speed extended from April 2024 to the end of September 2024, and that's really to mitigate the impact of the McCloud remedy medium schemes that those with 100 to 999 active or deferred members.
They have to get on the pension dashboard between October 2024 and October 2025. Small and micro schemes they are not specifically covered by the draft regulations, but the DWP has said they expect them to stage the schemes from 2026.
OK, so, that's all we've got time for today.
Here are the learning outcomes again, so describe ways to maximize workplace pension accumulation, explain strategies to achieve best member outcomes, identify different methods of employee engagement in workplace pensions.
And legals here they’re up here, If you do have any questions about any of this or anything else with regards pensions or Royal London, please refer them to your usual Royal London contact. And, you know, that just leaves me to say, on behalf of Justin and myself.
Thanks for your time. I hope you found that useful. Goodbye.
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