Employee engagement in DC schemes has always been a challenge - even more so during the COVID-19 pandemic where employees are reducing their contributions as their personal finances tighten.
We are all grappling with new ways of working, with some employees on reduced hours and pay, whilst others are on furlough. Employers are trying to ensure that their businesses emerge from this period with a sustainable future.
While operating within these (hopefully short-term) budgetary challenges, how can employers look to the longer-term and benefit from the rewards of helping employees meet their retirement income needs?
Is there a way to help employees navigate the complexity that Freedom and Choice now offers, without employers straying into financial advice?
Our DC Excellence team was joined by Rachelle Trueman, Pensions Manager, from Molson Coors and Rob Harper, Partner, from Hymans Robertson for a panel discussion which covered:
- Financial education in the workplace - employers' obligations and solutions
- An employer's experience of offering a financial wellbeing programme
- Freedom & Choice - current industry practice
- Pension scams - good practice for employers, employees and trustees
- Diversity & pensions - The Pensions Pay Gap: engaging employee groups with low pension savings
Joanne Tibbott: Hi everyone welcome to our webinar today on financial education in the workplace. I think we all acknowledge we have been living through what has been an extremely difficult sort of six or seven months and that is set to continue as we move into what is looking like a very long winter. I think all aspects of employee wellbeing are really important and the one area we are focusing on today is financial wellbeing and just having a think really about what employers within their own resources and within their constraints that they are operating under, what they might be able to do to help employees and also looking a bit around the legal framework around that too.
So just a few housekeeping tips before we get into the detail of the webinar. I will be sharing my screen so you will be able to see the slides and I will be moving the slides on for the speakers. If you can see the slides at the moment, you can select the view option and select side by side which will mean you will be able to see all of the speakers' lovely faces without obscuring the slides. There is a Q&A box which you can submit questions and we will probably hopefully try and answer as many of those as possible throughout the webinar. If we can't then we will be providing some follow up after the session for you. So feel free to ask anything at all that you want, within reason of course, and at the end we would be really grateful if you could take a minute or two just to fill in the survey. Just to give us feedback on how the session has been for you and ideas for future sessions that you would like to hear.
So in terms of what we are covering today we are joined by various guest speakers, so the first session is Richard Lee from Gowling and Rob Harper of Hymans; both partners within those organisations and as well as being pensions professionals, I was really interested to find out that both have previous experience in the theatre. So Richard working behind the scenes on the Buddy Holly musical, where he met his lovely wife Maria, and Rob played a more active role in the Full Monty musical, which involves him stripping to a lot less than he is wearing now so hopefully they will not burst out into song during the course of the webinar.
We have then got Rachelle Trueman who is the pensions manager UK and Ireland at Molson Coors, who is going to talk to you about what they have been doing at Molson Coors to help their employees. As well as being an excellent pensions professional that I have worked with over the years, Rachelle is also a keen chef and has taken to escaping from her desk and cooking up treats with online cookery classes during lockdown. Then finally not last but least Alison Garton who is one of our leading rising stars in our pensions team, an associate in the team who will be talking to you about pensions scams. Alison as well as all of the pensions stuff she is doing has found time in her spare time to turn her house plant collection from 18 to a fantastic 47 with a terrarium so if anyone wants any cuttings just please add to your survey feedback at the end of the session. So there should not be any fire alarms. If there is it is my own and I have forgotten to turn my oven off but hopefully the session will go without any hiccups so first of all I will turn to Richard and Rob who are going to talk about financial education in the workplace, employers obligations and solutions. I am just going to move the slides on Rich. I think there is a slight delay.
Richard Lee: Yes thanks Jo.
Joanne: Over to you.
Richard: Yes than you very much and I don't think I will look at Rob quite in the same way ever again. So a bit of background; change in pensions landscape wise this financial education piece so important why I am going back to 2012 workplace pension reform or auto-enrolment has now been responsible for about 10.5 million people being new savers in the pensions world. We then have the emphasis on the regulator's approach to DC with codes in guidance. We have this huge shift. We now have fewer than a million active DB savers and we have about 18 to 20 million active DC savers. So with that huge shift of responsibility towards the individual, we have got to move from paper to digital which is happening rapidly but needs to be carefully catered for. Pension Freedom back of 2015 so releasing a lot more flexibility for individual savers and then finally trust and confidence, where is that in the pensions industry and I do not think it is with politicians but we will see what employer's position is.
So just moving to the next slide. I am going to paint a bit of legal landscape, basically laying out the employer's duties. Hopefully, it will appear in front of you now what is the duty on employers to provide information to employees so of all the benefits that employers set out, where are the red lines, what do employers have to provide, what should they provide and what shouldn't they provide? These are real red lines. These are not politicians red lines that seem to be crossed every other day of the week and just moving on to a politician before I take his name in vain...
Joanne: Sorry Rich.
Richard: Don't worry. It does take something these days to be flabbergasted by what a politician says and we have moved on a slide too many there I think, but some of you will have seen Guy Opperman, in fact we have moved on loads of slides. The Guy Opperman statement yesterday, which frankly I was absolutely flabbergasted by and he said I think it is perfectly a good idea for individuals to take loans from their pensions savings. Thanks very much for that Guy. All of those who have put a lot of effort into keeping, retaining pensions savings, don't you know about the lifetime ISA, don't you know how hard it is to get loans back into pension savings so good to know the Pensions Minister is right on top of things. Now this slide that is in front of you now, just summarises the different areas where employers have to provide pensions or benefits information so the Pensions Act is auto-enrolment info. Employment Rights Act is your standard T&Cs including pensions, listing changes information when employers are proposing changes to pension arrangements. TUPE on business transfers and service provider changes, basic information and of course measures if changes are proposed. There is then stakeholder pensions those of you will remember in 2000 when they were introduced and the basic position on stakeholder and the fact that there are exemptions for employers in terms of what they can say about stakeholder pension arrangements and then finally which I am going to briefly touch on with some cases the implied duty under employment contracts so what is the position for employers.
So just moving to the next slide which hopefully will appear magically in front of you. So the first case, one of the key cases is called Scally. This was about NHS doctors and they had a collectively agreed position, which meant that they could buy additional pension in the NHS scheme. That arrangement was made with the unions and did not involve the individuals. Some doctors basically missed the timing window to buy additional pension, and the case revolved around whether the employer should have provided information to them about those deadlines. In these particular circumstances, the Court said, as you will see on the next slide, that yes the employer was under an obligation to take reasonable steps to bring this information to the individual's notice so that they could take advantage of this particular benefit. Now that is not the only story. There are limitations on this duty so it was collectively negotiated, individuals not involved, it was a valuable right and also the Court found that the individuals were not reasonably expected to be aware of the right so those are the scope, the red lines or the limitations if you like.
The next case moving four or five years or so forward, eight years forward, the University of Nottingham and IAT, an early retirement case, an individual decided to retire early at the end of July. Financially, it would have been much better for them had they gone a month later. The issue in the challenge that was brought was there a duty on the University, on the employer to have told the individual to wait a month. The answer that the Court came to was no the individual had all the information that they needed, it was not the employer's responsibility to tell the employee that they were making a poor decision. So a clear red line.
Crossley v Faithful & Gould. This was about a senior director within the business who was unfortunately ill and was unable to work. So it is a disability benefit scheme and he decided to resign but actually finished his benefit, and the Court found that it would not be reasonable to impose a duty on employers to tell employees when they were making poor economic decisions. So again, the duty here is pretty clear and very restricted.
A couple of Ombudsman's claims just before Rob comes in, fully clothed I'm glad to see, so Ramsey back in 2014, this again was an arrangement to buy additional pension. When he had done that, he was hit with a tax charge and he claimed that the employer should have told him about this specifically but the Deputy Ombudsman said no, there is no duty to tell employees again when they are making poor financial decisions. There had been general tax changes across the UK, which he should have been aware of.
Then slightly different a year later. Cherry, this is a Police case and there are several of these. The individual should have known when they were taking their early retirement from the Police pensions scheme and then being re-employed. They would hit a severe tax charge for being re-employed within 30 days and actually, in this case, it was found that the employer, in these specific and limited circumstances, did have a duty to tell the individual about the tax consequences of their actions.
Those are the duties that employees have and the scope of them. They are as you can tell pretty narrow. On the next slide we just move into the difference between guidance and advice and of course a difficult area for employers is making sure always that they have not stepped into regulator's advice. So on the left you can see guidance arena. These are generic pieces of information, suggestions generally made but they are not individual and they are not recommendations. On the other side is the advice arena where actual recommendations on individual circumstances are being made and that has obviously fairly recently been reformed as well and those are key differences that employers need to be aware of and I think in the past has been problematic in terms of clarity for employers.
The next slide is simply a graphic, not graphic in the sense of blood and violence but a graphic illustration of the difference between guidance and advice so are you simply supplying information? Are you making recommendations? What are the implications and what are the consequences for the individual?
Next up as we move into the position where we are now in terms of overall warnings for employers in this area so these are don'ts and do's. I am not sure why they are that way round but that is where we put them. Important to know what not to do so you should not be offering fun choices, you should make sure HR managers aren't suggesting transfers of other benefits or like Guy Opperman, why not just decide to dish all of your pension savings to buy property so don't listen to Guy Opperman is the answer. Then do, just provide general information and make sure it is well publicised and make sure it is accurate and clear and again just flagging that stakeholder pensions do have exemptions in the promotions area so for a long time employers had been able to safely mention stakeholder arrangements. Then finally my last slide before I go over to Rob. A summary slide, where are we now? The duty to inform individuals about their financial decisions is very narrow, based on Scally. So there is no duty to give to give advice about pensions and benefits just to take reasonable steps to make sure individuals have accurate information to make their decisions. You don't have to tell them as an employer that they are making a stupid decision but you do have to make sure that they have full accurate clear information. So that is in the back bit. Thank you Jo.
Joanne: Thanks Richard and sorry about the slight delay on the slides there.
Richard: That's alright.
Joanne: There is just one question that has come up Rich but I thought it might be quite timely to do it now and that is "What is the implied duty of care for the employer where contractual enrolments is used in the workplace"? I don't know if you have got any thoughts on that Rich?
Richard: Yes, I think again you follow these principles that are on that slide, and in the cases where contractual enrolment is involved. You have to make sure that you have given the individual clear accurate information so that they understand what contractual enrolment is and the consequences of not opting out, so contractual enrolment in the same way that statutory enrolment for auto-enrolment takes place. There's an opt-out option and individuals need to clearly have the information on which they base an informed decision. I don't think that it increases the depth or level of the duty of trust and confidence, it is the same principle which is clear accurate information so you are moving from just statutory auto enrolment regimes to a contractual enrolment regime but the general principles are the same.
Joanne: Great. Thank you so I am just going to now move the slides on, there we go, it has worked thank goodness my wi-fi is catching up so hand over to Rob at Hymans.
Rob Harper: Thanks Jo. Morning everybody and I guess after that intro I should make it clear that i will keep more than just my hat on but we have heard from Richard there, there is very little by way of duty or requirement to do much to look after the financial wellbeing of your employees so why do we bother? Well hopefully some of the stats here will give you a hint as to why it is worth bothering.
So the most concerning area for people consistently coming through in surveys, over a third of people say money is their biggest worry so that is not a great place to have all your employees. If they are worrying about money they are more than four times more likely to suffer from some kind of depression or anxiety. Do you care? Why does that matter to you? Well yes you should care. One, because you are a caring employer but equally it has a financial impact on your business you know. People who are stressed, who are anxious about money are more likely to be absent from work. Various stats there on the right hand side, I will not quote them all, but the bottom line of that is various studies have shown that productivity within your business is likely to be between 10% and 15% lower than it could be if you have got a chunk of your staff concerned about their finances. Good reason to do something I think.
Now it is often said that we are all somewhere on the spectrum yes. This is a slightly different spectrum I guess I'm talking about here. Jo there are three builds if you could just bring those up please. Where would you sit as an employer? Yes you can sit back and do nothing at one end. Probably somewhere in the middle. A lot of us are there at the moment. Thinking we will give some information we will help a little bit but the direction of travel generally out there seems to be, that employers are looking to help their employees out more and be more towards the right hand side of this spectrum to give some support to avoid this anxiety over money and money worries that their employees have.
Skipping on to the next one. So why would you want to be at the left hand then. I mean some people do. I think it is easier to sit there and say well individual finance that's the problem of the employee if I get too involved I might get mixed up in giving in advertent advice or whatever.
There is also a view that well it is only a few that are affected by this, anybody half well educated knows how to sort out their money and particularly those who are well paid, they've got my problem with money. The chart at the bottom there without going through the detail again surveys have shown that right across the board regardless of income and education levels, somewhere between 30% and 50% of employees are likely to have concerns over money. That is a lot of your staff and that is going to have an impact on your business.
So what can we do about it or what could you do as an employer to help your staff? I guess firstly, there is attending sessions like this and getting your head around well what are the problems if I do nothing? Why should I care and hopefully after you have listened to us today you realise why it is worth caring about some of this and I am sure some of you already do anyway. But probably the second point there is one of the most important. There is not a one size fits all here. You cannot just assume you know what your employees are worried about. Very important to engage them and understand really what are their biggest concerns? Is it debt? Is it paying off a student loan? Is it saving for a house? You might find different pockets across your workforce that have different concerns and need different interventions therefore to support them. Don't forget there are lots of free resources available out there to help your employees. This does not have to be a big expensive programme of education that you bring in and you pay consultant's hefty fees for. There are loads of stuff you can find quite often for example you will have some kind of healthcare insurance or whatever in your business that has with it a free employee assistance programme for example. Very rarely promoted heavily though and a lot of the employees probably do not even know it is there. There is someone they can turn to and have a chat. So I think it is important to make sure people are aware of what resources you already make available for nothing and if you really are keen to make an impact in this area I think the most important part is that senior leaders in your business are seen to take this seriously.
They engage with staff explain why it is an issue and what can be done to help them. Relate it back to your business and your values as a business and how you are trying to do good in the areas in which you operate and I think in that way you will get that engagement from staff that will genuinely help them with their money worries.
Can we skip on please Jo?
What might some of these solutions look like and I am not here trying to give you a whole list of things but often it varies according to age, you know life stages, what is it that we can be doing. You can start with pretty simple stuff though, spending monitors and budgeting tools are widely available now as apps on phones. They are really helpful to employees to get a handle on what is happening with their money, where they can make simple savings in their kind of life habits. Those things you can promote very easily at low cost.
I mentioned employee assistance programmes already but various things we can be doing on the left hand side of this slide I guess, which is around earlier years in your career typically and on the right more around the workplace retirement planning. I will come back to that shortly with a few more detailed ideas on what is going on in retirement planning.
That was really a very quick overview I guess of why you might want to support your employees with financial wellbeing and what are the sort of high level areas you can get into? I think now I will hand across to Rachelle who is going to give you some more practical ideas of what is actually happening at Molson Coors.
Rachelle Trueman: Thanks Rob. It is really good to hear what you are saying there and a lot of that certainly resonates with what we are trying to do at Molson Coors so I suppose firstly good morning everybody and thanks for taking time out to listen to this webinar today.
So really why are we bothered at Molson Coors about financial wellbeing and it does tie in with exactly what Rob was talking about that financial wellbeing is a really big deal right now.
People are worried about their money and more so than ever in the current climate particularly for us right now in the industry that we operate in and the strains that we know our people are faced with. So we know that if our people are worrying about money that it has an impact on their mental health too and their productivity, so our financial wellbeing sits within our wider wellbeing strategy and you can see there the graphic on the right hand side of the screen, our wellbeing pillars and some of these are much more developed than others.
I would say with financial wellbeing we are where we are sort of three years ago on mental health wellbeing which is much more developed, people are more comfortable about talking about that sort of initial experience of financial wellbeing is that people are sort of quite reluctant to come forward. There is that taboo around talking about money so we are on a journey.
I guess I wanted to say on this slide that wellbeing links back clearly to one of our values as a business and that is putting people first. That is a behaviour something we live and breath every day so I think it is important if you are launching a wellbeing strategy, try and link that back to one of your company values and Jo if you could move on please?
So the other important aspect for us is getting our senior leaders to take an active role in driving our wellbeing agenda and you see on that picture that is Phil Whitehead, our managing director who is launching our wellbeing hub in that slide and he did a video all about that.
We have also done various sorts of financial wellbeing initiatives over the last few months. We have heard senior leaders such as our HR directors talking to people about what it means to them and why it is important to us that our people feel supported around financial wellbeing which obviously goes much wider than just promising to pay them 100% of their salary if they are on furlough for example which is something we have been proud to be able to do through this pandemic.
So COVID has I would say really driven up financial wellbeing of our programme. It has not necessarily changed our approach but it has given us more focus to talk about money right now with people and what they are worrying about. So I think if you can link it back to your company value and you can get your senior leaders engaged in this then that gives a clear message to employees that this is something we really care about and we really want to help you with. Can you move on Jo?
So this slide here is really summarising the key steps that we believe fit within a financial wellbeing programme for us so the first one is listening to employees so we take an active listening approach when we are designing initiatives benefits at Molson Coors and that goes straight across our wellbeing agenda. I will go on the next slide to talk about what we are doing to find out what people are worrying about. I think there is a danger of making assumptions and thinking I know the tool that needs to be put in place to help people but how do you know that unless you have gathered those views and taken the time to listen. As part of our financial wellbeing programme we are emphasising our existing benefits and resources. Rob mentioned the EAP service, and that is just one example of something that people do not always know about. So as part of our programme we have done quite a bit on reminding people what their benefits are and where they can go for help if they need it and we have found actually that people have used the EAP line quite a bit actually during the pandemic.
The third one is really important and it sits at the heart of our financial wellbeing programme and that is providing opportunities for people to access quality financial education. I will talk a little bit more about what we have done so far and what our future plans are around that and then finally, as I said at the start financial wellbeing is something that will evolve over time and it is a constant dialogue, it is not a let's just do this now. I think there is a lot to do to get more people engaged with thinking about their financial wellbeing and it is a bit of slow burner so we are on a journey to keep talking to people and that way then we can develop other tools, other resources that hopefully become part of our sort of future wellbeing programme. Can we move on Jo please?
So I started talking about giving people a voice and there are several things we have done recently for financial wellbeing to gather the intel that we want and it is quite difficult to start that conversation talking about money to people so we have used several different things really, people like talking to you in different ways. Some people are quite happy to talk openly in a forum, other people want to answer a confidential survey so that we only get to see high level results, obviously no names. The third area was a personal financial wellness assessment and this was something we developed with a specialist provider financial education and it gave people access to answer a one minute survey about how they were feeling about money right now which is different obviously for everybody. Some people may have a high level of financial stress but actually can cope with it better. So the personal financial wellness aimed to give people a score about how they were feeling but it also importantly gave some really good signposts to things that they commented upon in the survey, so for example, a question around debt. It would signpost them to where they could access trusted information on that. We also used employee feedback from webinars that we have been running recently. We found that people were quite engaged in telling us what they thought about the webinars but also what else they would like to hear about in the future. So that has been great so if we take all four of those pillars together it has given us quite a good picture so far but as I say it is an ongoing dialogue to get more and more people to tell us what it is they need. Do Jo could you turn over?
So what did we find out? So in our surveys I mean this is not a surprise many people feel anxious about financial situation. Maybe if we had some this survey before anybody knew about a pandemic I still think they might have answered it in the same way. Getting people to start talking about money and what worries them just isn't easy. I mean we have got a good baseline level of data but it is not enough at the moment. We need to keep talking to people about it so that one to two years from now we can feel really confident at Molson Coors that we have got a really good handle on people's financial wellbeing. What we know so far though is that the top three areas that people want more help with is financial planning so that is the basics, the budgeting which obviously Rob had in his first pillar. Pensions which obviously music to my ears as a pensions manager we all want to keep talking to our employees about that and driving up engagement right, and then the third area really important family protection. So Jo could you go on to the next slide?
So when we thought about coming up with a financial education programme at Molson Coors, we thought about particular dates, weeks in the calendar where we could use that as an opportunity to talk to people and the first thing we did this year was around the Financial Awareness Day in August. So we published weekly wellbeing newsletters at Molson Coors which have been a great way to keep talking to people during the pandemic and we have dedicated some of those newsletters purely to the top for financial wellbeing and we use those newsletters to signpost important basic areas, budgeting with the Money and Pensions Service, debt advice, state planning. We also use the newsletters to remind people about their existing benefits to drive them to go to our DC pension website, our DB pension website and start getting engaged a little bit more with their pension. We also launched some webinars, make your money count webinars and I will just say right now we did not spend any money doing this, there are lots of people out there at the moment that want to help employers on this journey. Those webinars were great because it gave people in very easier to understand fun ways really, top tips and signposts to help them build their financial resilience, and we find that it is the basics that people want help with so budgeting, saving, debt management. So that was Financial Awareness day and we got lots of great feedback on those webinars, which then helped us to shape Pensions Awareness Week in September. This was something I was really proud of actually because there were lots and lots of people that wanted to listen and ask questions about their pensions and one of our sort of key messages was take the time now to think about your pension. It might not be a top priority in the middle of a pandemic but taking the time to listen and understand can help just provide that reassurance for people at the moment.
So we had DC webinars, DB webinars, and then we also took the opportunity to weave in a bit of wider financial wellbeing in the shape of financial planning tutorials. These linked back to exactly what people were asking for and we were able to say to them, you told us you want some more help with budgeting and top tips, well here is a financial planning tutorial to help you. They were delivered at low cost as we have got a big focus at the moment on saving unnecessary costs at Molson Coors.
Obviously we are in the beer industry which is under incredible pressure so I do not have a huge budget to deliver financial wellbeing and financial education so one of my tips would be lean on your advisors as much as you can. Our DC provider is Aviva and they have a whole host of tools, brilliant marketing collateral that there is there to use so that is what we tried to do. Also during Pensions Awareness Week we promoted a mid-life MOT session that Aviva are running and it was great to hear Guy Opperman this morning talk about mid-life MOTs and something everyone should be doing. We also had great feedback on that and it is something we will continue to promote. We have not got to Talk Money Week yet but that is our next opportunity to talk to people and again that will be in the shape of webinars, newsletters, signposting so it is just keeping that sort of constant conversation going within the business. Jo next slide please?
So to sum up #let'skeeptalking. That's our strapline at Molson Coors when we are talking about wellbeing. It sort of just resonates with our active listening approach and just talking to people, that ongoing dialogue to build that trust.
Our future plans for 2021 will evolve to exploring what else we could add to our financial wellbeing programme. There are lots out there at the moment. Salary advance, workplace ISAs, lots of people that want to talk to you all the time about tools, platforms, apps. For us right now we are making use of what we have got already and we are not spending loads of cash but in the future there may be an opportunity to implement some new tools perhaps if we think that is what people want if that's what they have told us. Whatever we do we will be will be grounded in financial education because it is not a one stop shop it is an ongoing conversation and then talking to people at different life stages is something I am really keen to make sure we do. We have started it but there is still more to be done so next year we will be looking at splitting it up so that we have got the early careers, the mid-life MOTers and then the retirement planning spectrum. So again it is just a different way to talk to people and make it relevant at whatever life stage they are at.
Joanne: Ok thanks Rachelle. That is really, really interesting and I think as advisors we spend a lot of time talking to clients about this kind of thing but it is really fantastic to see how you have rolled it out in practice so yeah that is absolutely great. I guess one question from me if that's OK. I was really interested just thinking about our own governance committee in the firm and just thinking about member engagement. It was really interesting when you said that there were loads of people here who were really interested in talking to you about pensions listening to the webinars. I was just quite interested. Was that across the kind of whole demographic of your employees or was it people closer to retirement. I was just interested to see.
Rachelle: It was right across actually and I think it does expel that myth that people only get interested at a later stage whereas actually there are lots of young people and mid-life people that want to start engaging more with their pension. Yes so I think because we targeted sort of the DC webinar was more about learn more about your pension. Obviously, the DB people do understand how their DB pension works and they have a good handle on it but by definition, they are the people that are at the later stage of their career. We know our people like to talk about pensions face to face, who does want to read something about pensions quite frankly so we know they like the face to face. Obviously we could not deliver face to face but having a webinar we did actually find more people were willing to attend a webinar than take time out. If we had been running them at our brewery site or head office site I think it would have been more difficult to get those people along but asking them to jump on a webinar for an hour or listen again if they did not get the chance to listen live. It has enabled us to reach more people.
Joanne: OK that is great. Thanks Rachelle that was really interesting. So Rob I am just going to hopefully get these slides. There we go excellent so I am going to hand over back to Rob. He is going to talk a bit about DC retirement options.
Rob: Thanks Jo and I promised or maybe threatened earlier said we would return to pensions so you've got a bit of that but before I get into pensions just let's set this retirement decision I guess in the context of someone's financial journey. I am not going to point out all the details on this slide but there are lots of different decisions that our employees have to deal with at different stages in their life. You know be it buying a house, be it paying off university debt whatever. Lots of big financial decisions but one of the biggest they face is what to do with their retirement savings and so I am going to focus now I guess on the 50+ end of this spectrum on the next few slides so if we jump forward Jo please.
Even in this space when you get into retirement there are lots and lots of choice OK lots of things people can now do with their pensions pot. I won't read them all out because I'm sure most of the people online here are pretty familiar with these choices. What you have got to recognise is that most of the members of your pension funds are not at all familiar with it and it is one of the biggest financial decisions they have to make and there is huge opportunity for regret here having jumped into the wrong option. So how do employees find their way through this mishmash of options and opportunities available to them when they have got a huge chunk of cash they have never had to think about in that context before. We'll jump on please.
So what are people actually doing; two charts here the left hand one is headcount and the right hand one is a split by the value of the pots that are going into those different choices. By far by number the biggest choice is to cash in your pot at retirement but the positive side of that is the average size of those pots there is under £30,000. So probably not too many people making terrible decisions. I think just a recognition that DC is starting to come of age but there are still a lot of DC retirees at the moment with relatively modest DC pots but that will change over time. Interesting to see there is still a chunk of people buying annuities 10% of individuals retiring are buying annuities. My assumption there is that they are people who the DC pot is their major retirement income and they need security therefore over that money just for the basic necessities of life. Then you have got maybe a third now approaching a third people who are using the flexibilities more and going into some form of drawdown but that can be expensive choice. Click over again please Jo.
So how are employees making these decisions? Sorry there is a lot of detail on this. I hope you can read it OK but essentially a point I am trying to get over here I suppose is around about a million people a year now retiring and having to make choices about their DC pots. There is around 7 million who are over 55 and could make a choice if they want and could start to access their money. How do these people actually know they are making the right choices? Various quotes on this side essentially everyone is saying it is really difficult to get advice. Advice is hard to come by and expensive. Why do we make that so difficult for individuals to really get the advice they need or even the information they need to make a sensible choice at retirement?
So let's click on one more here. I guess the biggest challenge here is you know over recent years the demand for financial advice has grown pretty rapidly on the left hand side there various reasons why individuals are looking to get support on their finances not least of which is they are responsible for it now. The old DB world when they could just sit back and take their money, long gone for most pensioners today. On the right hand side, unfortunately, we are seeing reducing numbers of financial advisors out there and those that are there still are being very picky. They might have minimum limits of 250,000 investible assets before they will even bother to go and talk to a potential customer and so there is a real mishmatch here between the need for financial advice and support and actually the availability of that. People have talked a lot about tech tools and robo advice but at this stage we are not really seeing a lot of that taking off and I guess there are concerns from individuals you know what can they trust Rachelle mentioned people like that face to face conversation about their pension. That's the thing that is so hard to find. Let's click on to the next.
So what kind of things could you do as an employer? What are the ways to support your staff in these situations? At the top left there I guess you know if you have got your own trust, most trustees are not keen to run post retirement drawdowns or all the options available through that pension fund and employees or members have to move their money out to access the full range of flexibilities.
That though does not have to be a difficult journey. You know you can liaise with providers to make it a nice simple option for people to trip over say into a master trust or something like that at retirement where they can access a broader range of flexibilities. It is often made quite difficult for people at the moment to do that.
Second area you know communication and education we have spoken an awful lot about that already but there is a lot you can say to your members without overstepping that mark for financial advice. I think a lot of employers, trustees, whichever it may be are fearful of that and as Richard said earlier there is not all those duties to help people though this situation but there is an implied duty to give them enough information to make an informed choice so let's make sure we are doing that.
You can move over further to the right and look to find an advisor who could support your employees you know. There are firms out there growing at the moment in terms of being at the retirement space. A number of advisory firms who are set up specifically for that and indeed my own firm are looking into what can we do to support our client's members at that stage by actually getting closer to the individual members not just the corporate body and ensure those members get access to high quality financial advice.
Costs can get in the way of a lot of this though and so what we are seeing at the moment and it is a rapidly expanding area, but a number of the providers are creating very user friendly on line tools simple ways to describe what a drawdown is. What are the risks involved what different investment profiles might do. We have got the drawdown pathways now that providers have to show so lots of creative thinking around how can we get this information across to employees very easily and quite often you will find providers will supply that no cost to you.
The middle box there competitively, middle bottom, competitively price, quite often drawdown certainly if it advised can be very expensive with members paying 2% to 3% per annum quite often in fees for an advised drawdown product. You have got to turn in one hell of an investment return to pay those fees and still have a growing fund. What can we do that can make those products more competitive and more cost effective for employees? Perhaps we can switch on to the next slide.
So, where can you go to find this support for your employees, and the first place really, the first door to knock on is your pension provider. Rachelle mentioned that Aviva have all kinds of tools for financial wellbeing. They also have tools for at retirement decision making and choices and so do all the big players in the market both the traditional insurers and the EBCs with their master trusts. All of these people are out there now with offerings to make this stuff easier for your employees but typically does not come at a significant cost to the employer. You can go a step further. You can bring people in to sort of design programmes specifically for your staff. That again can be quite cost effective because it can be delivered via webinar or video. It does not have to be you know the old days when you would be in a van travelling around the country for three weeks trying to catch every member of staff at a particular organisation. This stuff can be done very cheaply and easily now. I know on one of my clients we implemented video benefit statements this year and it proved to be no more expensive than the old paper based ones because you have not got all the printing and posting involved.
It could be just emailed out as links and it was very well received by the membership. Don't forget to signpost the free services that are there, you know Money and Pensions Service and others out there who are there to support people and given them the information they need to understand the options that are available to them. As I said, I think we are seeing now a growing demand from the members to actually get formal financial advice. That is not easily available but can be found and sourced if you as an employer or a board of trustees select an IFA as a preferred provider or a panel quite often you can negotiate a better cost deal for your members than they would get if they go and do this alone. So even that sort of upfront negotiation by you does not have to have an ongoing cost, but what it does do is give better value to your members once they retire. The last one I mentioned, that if you have got your own standalone trust in DC, you can still create a partnership with a master trust that makes it easier for your employees to roll over from your savings vehicle into their spending vehicle if you like.
So lots of possible solutions, lots of choices that you can deliver to your members and make it a lot easier for those to make what is potentially the biggest financial decision they will ever make in their life. That was all I had got to say for now.
Joanne: Brilliant. Thanks rob that was really helpful so there are a couple of questions I wanted to post to Rob and Rich but if we move onto Ali who is just going to cover a really important area just as a reminder and a refresher really so over to you Ali.
Alison Garton: Thanks Jo yes that is exactly right. If the one key message that I would like you to take away from this is that pensions scams have not gone away. In terms of what that problem looks like now, we are seeing it more on social media rather than cold calling which is banned. It is all well and good making sure that your employees and your members save money into their pension scheme but if it lost to scammers then all of that effort is wasted. Age groups most at risk is the 45 to 65 but I think nobody is safe really. So next slide please Jo.
So what can employers do? Richard has already talked about what employer's duties are in terms of education but I think it is really important just to keep an ear to the ground. This is not a costly exercise. It is just noticing if lots of employees are talking about this great new offer that they have received to transfer their pension. Making sure that your HR teams and your employee benefits teams are educated as to what the red flags are and they have access to scams smart materials and anything like that. This bit at the bottom of the slide it just really talks about how all aspects of your workforce could be under the threat from pensions scams and Scams Smart has surveyed football fans and university educated employees and have really found that they are not noticing the red flags from scams. Next slide please Jo.
I have talked here about what the law is in terms of transfers. Now this applies to trustees. Trustees are in a really difficult spot, because, they are required to effect a statutory right to a transfer value. At the same time they need their statutory discharge when the pensions transferred, and effectively to get that statutory discharge, they need to make sure that they have done what is needed to carry out what the member requires. It is now clear that that also includes making sure that the receiving scheme is legitimate and doing the required due diligence so if you move on to the next slide please Jo.
So for trustees, there is some really useful guidance which I do recommend for anybody who is on sort of trustee side on this call, to make sure that you are really familiar with this guidance and check that your administrators are following this. In particular, the Pensions Scams Industry Group Code of Good Practice is a really detailed document and sets out really useful questions for your administrators to be asking so yes we really recommend that you look at those. Next slide please Jo.
This is a more detailed slide about what trustees should be doing in order to make sure that they do get their statutory discharge and that they are doing their due diligence on receiving schemes.
I think the key thing, this is all based on the Pensions Scams Industry Group guidance, so really do get familiar with that but at the end of the day if it is a statutory transfer then at the end of the day you need to be transferring the pension across. So just make sure that you can prove that you have done as much due diligence as possible and if a member is continuing to insist that they want the transfer then make sure that you have got a really robust discharge form in place that they can sign. Next slide thank you.
So what's coming down the tracks? The Pensions Scheme Bill should make life easier for everybody because it inserts a requirement where somebody only has a right to a transfer value if they have a link to the new employer. COVID, really interestingly, we have not actually seen that COVID has increased pension scams. I don't know if the scammers are distracted doing other things but I imagine that that will start to come down the line at some point. COVID is not going away yet and online fraud generally is increasing as a threat. The new PASA guidance will come into place at the end of the year. That is more DB focused but I think it will have really helpful hints and tips as well about the DC transfer world and the online Harms Bill will also be coming into play apparently in about 2023 and there are questions about whether or not there will be something in there about online pensions scams as well.
Joanne: OK well thanks very much Ali. I'm really conscious of time. We have covered a lot of really interesting material. Rich I don't know if you just want to say sort of 20/30 seconds on pensions and diversity. I know we can't attempt to cover it properly in that time but just to kind of flag really.
Richard: That's fine, so part of the financial education is clear that there are certain groups of the workforce that undersave. So the gender gaps are the gender pensions gap absolutely clear I mean we all work in the industry but I was surprised by some of the figures on here, clearly women are undersaving generally because they have a more broken work pattern and the various statistics on that slide show just what a huge problem that is. We can move on to the next one Jo.
The factors are there obviously usually it is down to lower levels of earnings over the lifetime. There is the state pension age issue which the Government has actually just won the latest challenge to that. Women generally tend to work in part time and lower paid roles and take on more childcare responsibilities still so what do you do about that? Well you emphasise the need to save once they are back and make up their savings in the pensions world. That is one straightforward initiative and the final slide on ethnicity and pensions, also some fairly shocking figures and related to earnings as would be logical but basically ethnic minority in the workforce save at a much lower level and that again is an area for increased focus that employers should have if at all possible. So that is all we wanted to do really was to just flag that those areas do need particular focus within the financial education sphere. Thanks Jo.
Joanne: OK. Thanks very much. Now I am really conscious we have come to the end of our time slot now so what I propose we do is we have got a few questions and I know there were questions that were submitted before the webinar as well and we will answer those as a follow up for everyone. We will circulate the slides and also provide you with a recording as well in case you want to share it with any colleagues. So it just leaves me to thank all of our fantastic speakers really appreciate you taking the time to present today and also to those of you who have attended the webinar. Thank you very much for attending and hope to catch up with you all soon in person and not on a screen but who knows when that will be. Thank you very much.
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