Over the past nine years the pensions industry has gone through a number of reforms with the aim to future-proof people for retirement. The major change came into effect on the 6th of April 2015 when reforms around Defined Contribution (DC) schemes came into play. No longer did members have to buy an annuity when they opted to start using their pensions, they could now take all the savings as cash in one lump sum. The media attention around the change in annuity purchase as well as auto-enrolment did great things for the pensions industry as people started to take note of their pension and become engaged in how it could work for them.
In my line of work I am constantly speaking to pensions professionals and it has been interesting to see what challenges they have come across over their career. Many companies have already faced shutting a DC scheme to new members or closing it all together and others are going through the process of designing their first DC scheme for their employers. As auto-enrolment progresses companies continue to opt into schemes to become compliant under UK employment law. Pension consultants are more than happy to pick up the extra work. This however has also meant that the administrators, investment advisors and actuaries are having to work smarter to delivery similar results for companies who may not have the capital to fund a full pension consultation. The companies these professionals work for are looking for talented employees who can manage increased workloads whilst maintaining the service level agreed to.
Pensions are evolving
On the flip side, in-house managers are seeing more employees engage in their pension pot and start to question their contribution numbers. Pension management is no longer a function that can sit under the finance department, it has firmly cemented itself as an integral part of reward. From a recruitment point of view the pension offered is consistently brought up as a selling point, behind basic salary and bonus potential people want to know what a potential employer will contribute to a pension for them. Companies are employing pension’s managers who have strong analytical skills to look after the reconciliations and reporting side of pension, but also who have strong communication skills as they need to have the ability to flex how they discuss the scheme depending on which stakeholder they are talking to. Employers look for people who can spearhead change and bring innovation to the scheme to increase employee engagement, they are wanting to use their pension offering as a retention tool – and I have seen it work with people who have got a DB scheme.
The pensions industry is highly regulated and recently, highly publicised. Managers are now seeing the flow-on effect of educated staff wanting to know how they can get their pension to work more effectively for their future. One example I have come across was when an Actuary walked into the Managers room to discuss their pension, a fairly simple request but for someone who makes a career out of crunching numbers they were looking for some detailed help. The company has a DC scheme and the actuary wanted to run the numbers on increasing their pension contribution by 2%, running that increase for 20 years and calculating the total pot in-line with standard salary inflation. The manager was able to run the numbers and produce the information requested but the actuary started to query different results for different scenarios.
Now a manager has to be confident in being able to run the calculations and discuss numbers however they can’t advise. The changes in the pensions industry has opened up a whole new sector and this is where pensions specific Investment Consultants have come into the spotlight. If you take the same calculation the actuary wanted run listed and take that information to an Investment Consultant they will now be able to manipulate the money, advise you how to invest and when, what you should do when you are 55 and also predict any tax implications with regards to contributions and potential threshold hitting. The government are looking to supplement their budget deficit through people cashing in their pensions and paying large tax bills, Oakleaf Partnership have seen an increase in demand from our clients for qualified Financial Planners to supplement their business to support people through the changes. The pension industry is continuing to grow and react to the changes, it will be interesting to see how things develop over the next few years and measure the results particularly as we have an aging generation, although this is a whole other topic for discussion.