I was lucky enough to work in a life and pensions business at the tender age of 25. The Chief Actuary scared the life out of me by telling me, “you can have your money now, or you can have it when you retire, but you can’t have it both times” – long term savings advice reduced to its essence!
The last five years has seen unprecedented focus on reforming employee pensions. An increased emphasis on streamlining how pensions are provided to a workforce that is remaining in employment for longer than ever before has culminated in the government introducing auto-enrolment, its main aim being to future-proof people for retirement. However, auto-enrolment and recent changes to annuities have pushed costs complexity away from private pension providers onto employers; specifically HR professionals. Long-term savings are extremely important, particularly with us all living longer, so the challenge for us is how we engage our people in thinking about and planning for retirement.
Having started in October 2012, auto-enrolment will be mandatory for all businesses by September 2016 and, for the first time ever in the UK, there will be a legal requirement for all employers to contribute to their employees’ pensions. Employees who earn in excess of £7,335 per annum and are aged between 22 and state pension age will have to be automatically enrolled within three months of starting at the company. The size of the contribution that employers will have to make will be at least 8% of earnings by October 2017 – a big increase in costs for many companies. This is likely to impact the spend available for other employee benefits, which individuals might prefer or value more highly. There are some housekeeping impacts too – check whether your contracts and offer letters need amending to reflect auto enrolment, whether you need to write to employees to notify of any changes and whether your policies need updating.
Advise your people about money
The complexity of these latest pension reforms have meant that there is increased responsibility for HR professionals to make financial education in the workplace more engaging - encouraging realistic saving levels and helping employees to future-proof their retirement!
The introduction of a number of pension reforms has resulted in additional costs for HR professionals and an increased complexity in a variety of tasks. But in my view (and that of my former Chief Actuary!) it is an important and necessary step to get a workforce who are choosing to spend their money now, to really think about and plan for what they will live on when they retire.