Key speechesEmployer engagement: making a positive difference to pensions

Published: PMI News, September 2009

Exec summary

Employers can play an important role in pension provision and making sure that employees are informed about pension options have the relevant information about the scheme. Employers can also provide governance support in contract-based schemes. This article looks at the work the regulator is doing to encourage employers to engage with their pension provision, especially in light of the 2012 reforms when employers will be required to enrol their employees into a qualifying scheme.  

As the pension landscape changes, so too is the way employers and employees interact with their pension provision. For some years we have been seeing a shift from DB to DC provision as well as a shift from trust-based to contract-based schemes. The landscape will change again as the 2012 reforms come into affect and employers are required to enrol employees automatically into a qualifying workplace pension scheme. This will see up to 7 million more people enabled to save for their retirement and many of these are likely to save into DC schemes.

We have recently started a period of intensive work looking at improving standards in DC schemes. We are focused on both the trustees' role and employer engagement with their pension schemes, with the aim of improving the outcome for members at retirement.

Taking responsibility

As the DC scheme member bears significant responsibility for the outcome of their pension savings, being able to make informed decisions is essential. Pensions can be perceived as highly complicated and so to make the most of the pension that they are offered members need to have all the relevant information available to them.

In trust-based schemes we would expect members to go to their trustees for support and we have recently asked trustees to look carefully at their member communications and their pre-retirement processes. We want trustees to ensure that these are fit for purpose in helping members nearing retirement to make the most of their savings. However, taking responsibility for retirement income is a process that begins when a member is first considering whether or not to join a scheme and this is where the employer can play a valuable role.

The role of the employer

Employers can make a positive difference to the decision-making process about retirement savings. We know from research carried out by the ABI that employers are a trusted source of information about pensions and that employees trust their employer will keep their word. The research also shows that employer promotion of pension options actually boosts take-up of workplace pensions.

It is for this reason that we encourage positive employer engagement with their pension provision. Employers can help to inform employees about the facts around pensions and what they will get from joining a pension scheme. They can also provide facts about investment choices and provide support when an employee approaches retirement.

However we also know that employers are concerned about being seen to give financial advice to their employees. So in conjunction with the FSA, we have recently published a leaflet which sets out what an employer can say about a pension scheme.

The guide answers questions like: Why should I bother providing information to my employees about pensions; What can I tell my employees about my pension scheme; What can I tell my employees if they ask me if it is a good idea to join the pension scheme; and What could I be doing when employees approach their retirement dates?

Ensuring better governance

In contract-based schemes employers can also have a positive impact on scheme governance. Members are likely to benefit if the scheme is reviewed periodically, and where there are no trustees to oversee governance, employers can fill this role.

There are no set rules to prescribe how governance is best delivered but we have guidance that gives examples of employer engagements including management committees, reviews by human resources, and reviews by an IFA.

The future

With the level of DC provision likely to increase in the coming years, particularly in light of the 2012 reforms, many more employees will bear greater responsibility for the outcome of their pension savings.

The reforms will require a higher level of employer engagement and whilst there are already many examples of good practice we want to encourage more employers to work now to help their employees make the most of their pension savings.

We have recently updated our website with information about our approach to DC for trustees, advisers and employers and we will add new material as the year progresses.

To view the DC information including the employer guide, visit http://www.thepensionsregulator.gov.uk