Admin Panel (October 2007) - Effective communication

Chairman
Mark Smith
Senior consultant
Lane Clark & Peacock
Smith joined Lane Clark & Peacock after 10 years with PricewaterhouseCoopers. He joined the employee benefit consulting with particular responsibility for developing LCP’s communication capabilities. Smith has advised his pensions and HR clients on governance and operational effectiveness for over 17 years.

Brian Critchell
Senior account manager
Xafinity Paymaster
Critchell is head of account management for Paymaster’s statutory and public service schemes and responsible for the company’s technical development team. He has 40 years’ experience in pensions, half with a major global consulting firm.
He is vice-president of the PMI, a regular speaker and contributor on behalf of both the PMI and Paymaster.

Alistair Hoare
Administration director
MNPA
Hoare is responsible
for the delivery of MNPA’s pensions administration services and manages its administration department. Prior to joining MNPA in 2004, he was regional operations director for a major consultancy. Hoare has a wealth of experience of managing multi-disciplinary teams in both DB and DC environments. He also has considerable expertise in managing process improvement to the benefit of clients, helping to ensure the service delivered to them going forward is exactly what they want.

Malcolm Reynolds
Commercial director
JLT Benefit Solutions
Reynolds’s role is as national director of the benefits administration practice that provides advice to clients on operational administration effectiveness. Reynolds is a member of the JLT executive and has over 15 years’ experience in the pensions industry. He was previously a director at PricewaterhouseCoopers, where he spent 11 years and was responsible for the pensions management consultancy services. Reynolds was also a director at Profund Systems.

Paul Sturgess
Operations director
Capita Hartshead
Sturgess is operations director for benefits consultancy and actuarial at Capita Hartshead. He was previously a main board director of the FPS Group, which he joined in 2000 having formerly worked for Bacon & Woodrow in a specialist defined contribution role. Sturgess’s remit covers the whole range of technical, benefit consultancy and actuarial services now available to Capita Hartshead clients.


Chairman: Mark Smith
1. An increasing number of schemes now provide hybrid benefits, including combinations of final salary, career average and money purchase benefits. What are the challenges and solutions to effective member communication, compliance and benefit statement production?

2. How successful have money purchase modelling tools been at informing and engaging members in their decision-making? What cost effective alternatives exist for smaller schemes?

3. Are members of final salary schemes in a communication “blind spot”? What should the trustees and employers be regularly communicating to the members? What should the trustees be communicating to members if their sponsoring employer is part of a long sale negotiation?

4. What do you believe the impact on the pensions environment will be if the government changes the rules applying to salary sacrifice arrangements?


Brian Critchell
1. The different elements must be understandable to members, compliant with the relevant regulatory and disclosure requirements, and effective at engaging attention. Trustees and sponsors must take time and be clear on the messages they want to convey. Engage with your providers early to get buy-in. Understand the data capture requirements for an integrated solution.
For true hybrids, test the potential impact of differing compliance requirements. Work with your scheme administrators and target a realistic end-date allowing for differing platforms and capabilities.

2. We might believe them useful and valuable, but most are under used and not fully understood by members. Reinforcing how little someone will have at retirement might do more harm than good, if members switch off. Prompting members to achieve their desired level of retirement income requires a different approach.
Most projection tools miss the point by focusing on a point in time and not addressing lifestyle post retirement – i.e. income requirements/spending trends throughout the period of retirement. Successful modellers will make assumptions on spend based on dependents’ requirements: deposit for a house, university fees, elderly parents, nursing fees, etc.
Most contract-based defined contribution providers offer members a range of online services including modellers. The emerging occupational DC mastertrust products will do so too. Sponsors of smaller schemes can give pointers to free modeling tools on websites such as the Financial Services Authority. It doesn’t get more cost-effective than that.
There is still no substitute for explanation and assistance from a real person, like a professionally qualified and experienced administrator.

3. I don’t think so. The introduction of annual benefit statements may have
been shelved, but as far as we know
hasn’t been dropped completely. Currently being considered is how much information about scheme funding, etc., and in what format, should be disclosed to members in annual reports.
In a sale, members will want reassurance about the security of their benefits: what steps trustees might be taking to ensure adequate funding; The Pensions Regulator’s support role and the back-up function of the Pension Protection Fund. Ongoing, private sector pensions now have an extensive safety net. It has not protected all prior schemes, but is actually quite an achievement.

4. Salary sacrifice arrangements aren’t suitable for low earners, so not everyone has benefited. Higher National Insurance from their abolition could affect the amount employers are willing to contribute to pension schemes and reduce overall benefits. Does the government want this?


Alistair Hoare
1. The challenge for trustees is enabling members to understand each type of benefit and how it fits with the overall benefits they will receive. With various combinations of benefits built over, often complex, final salary benefit structures, trustees need to be committed to ensuring high standards in:
• The way information is set out.
• The language used (minimum jargon; no complicated sentences or difficult words; consistent use of terms across all letters
and statements).
• Consistency of message in each letter or statement.
The member should understand what they are being told and the actions they need to take in regard to benefits they choose. For a scheme with a DC element, the member needs to make investment decisions anyway, but where they have a combination of benefits they need to make these decisions with a complete picture of their overall entitlement from the scheme.
Some schemes use the web as the tool for bringing together all members’ benefits. To be successful it needs to be able to bring all the different bits of benefits together to show the member their overall entitlement and then allow the member to drill down to look in detail at each bit of pension and review any options or decisions they need to make.

2. Evidence suggests members don’t always know they are available and what they can use them for. There’s great potential for modelling tools as part of the trustee’s communication strategy, but only if the tools themselves are communicated well and members can use them and make decisions from them easily.
For small schemes, any online access to modelling tools would have to be fairly generic to make it financially viable.

3. With final salary schemes closing or changing structures and new schemes being introduced, there is a real fear from members that their final salary schemes will be sidelined.
For many members the bulk of their benefits will still be in their final salary scheme and trustees need to make sure the standards of administration and communication don’t fall. If anything greater commitment is needed to communication in times of uncertainty.
Total reward statements and combined pension forecast can help in this. This applies also where an employer is part of a long sale negotiation.
Members should be kept fully informed of progress on the sale and about the benefits, options and risks and what they will get out of being part of the sale.

4. Salary sacrifice arrangements will become much less attractive. The whole purpose of a salary sacrifice scheme was to help the employer and employee save costs by being exempt from paying NI earnings.


Malcolm Reynolds
1. For many years pensions have suffered from the “too many cooks…” syndrome. Repeated and extensive changes communicated to members in a positive light tend to be followed by bad press, leading to the actual members becoming disenfranchised and confused.
The profusion of new benefits, coupled with the history of pensions change, has created new difficulties and challenges in communication and benefit statements for members. I think it is true to say that members had got used to having and valuing final salary benefits and it is fair to say that some have got to grips with having money purchase benefits too. But the addition of career average, cash balance, salary sacrifice and bonus sacrifice can, if not handled correctly, lead members to just being totally confused and leave them dazed about options and benefits.
With all this confusion, simple, straightforward communications are key, with more effective communication models such as web modellers, DVDs and the good old face-to-face interaction. Benefit statements are also becoming more sophisticated, with more use of graphics and colour to outline change and benefit provision.

2. During the last 12 months, we have seen an increase in the number of exercises involving changes to benefit and contribution rates to closure of accrual rates. In recent examples we have seen more than 75pc of a scheme membership use a money purchase modeller developed by JLT, with the feedback achieved being used to facilitate the scheme change. Another recent exercise for a major employer led to acceptance of a move to CARE with a money purchase scheme being offered as an alternative.
Some of the lessons learnt from these exercises are that the modelling tools must be kept simple and, as far as possible, pre-populated with member information. If you make things simple for the member, they are left to focus on the really important aspects of change and how change impacts them. For smaller schemes, we have a number of basic modellers that have proved a successful tool in the process of change.

3. A large part of final salary communication is hindered by adherence to the disclosure regulations. Many schemes see this as a list of all information that must be provided rather than as a starting point for a communications strategy for the scheme. The fact is, however, that many schemes are not sure why these regulations exist. In order to communicate effectively, you must have an objective of your communication, whether that is to enhance members understanding, recruit new members or to explain how the company is dealing with a particular situation.
Even a quick and simple “all is fine” message is better than silence. This is especially true when the company is experiencing upheaval (for example, while being sold) as members will use the most efficient method they have to find out what is going on. Anyone who has played Chinese whispers will understand just how bad a message can become by the time the 10th person has repeated it over a coffee break.
However, we must not forget there may be good reasons why the trustee or corporate entity cannot comment on a potential sale, whether this be for regulatory or commercial and confidentiality reasons.

4. For the membership, the view will be “not again”. Unfortunately, we have only a small window of opportunity now as scheme changes seem to be on the decrease – a period of stability is now required to give everyone an opportunity to adjust. Major, centrally-arbited changes to the pensions landscape are the last thing we all need right now.


Paul Sturgess
1. The communi­cations issues are in part linked to the practical processes. Split service provision creates real obstacles to consolidated projections and from there the message can be lost.
A really good administration system can bring together hybrid benefits in a coherent way; however, the communications and linked administration issues need to be considered at the design stage, not after the key decisions are made. There are too many intellectually sound but complex and impractical design solutions. If members don’t understand it, then at best they will not truly appreciate the scheme and at worst they will not join!

2. Money purchase modelling tools have experienced some success but, as my PE teacher said: “could do better!” Interactive tools are the only really effective way to help members understand the dynamics of investment returns, risk, contingent benefits cost, variable retirement age, additional contributions, etc.
If we incorporate state benefits and allow members to add in retained benefits held elsewhere, they can get a complete picture for decision-making. By using third-party administrators’ standard capabilities, cost-effective tools are available to smaller schemes. When allied to face-to-face discussion and well-planned printed communications, powerful results can be achieved and the sponsoring employer can get maximum payback for its contributions.

3. Members are not as blind as they were, but at best they are visually impaired. Annual funding statements are a start, but the lack of enquiries we have received thus far implies that they have hit the filing tray rather than members’ consciousness. Trustees and employers need to stop and think about what they can achieve through communication, rather than only issue what they have to as a minimum.
In the final analysis, employers and trustees need to help members understand the value of what they have been given, the associated risks (for DB too), and the inevitable gap between that and members’ personal objectives.
The issue of a prolonged sale is a difficult one; what is communicated must not prejudice negotiations, and in any sale the deal is conjecture until signed. Communication should focus on whose interest trustees are considering and how that is measured, rather than the state of play at any one time.

4. The pensions environment has been dealing with the withdrawal of tax breaks for quite some time. Salary sacrifice arrangements have been around for a long while, but have only been used en masse in recent years. I think that they were always going to be under threat once they were used in a more mainstream way. There is always a lag between the event and general understanding of its impact. The withdrawal of advance corporation tax relief is a case in point – the ultimate result is simply that less money will be saved for retirement.
At the same time, woefully inadequate provisions are being made for many employees. The national pension savings scheme will help the issue of the “great unpensioned”, but it is not a panacea and there will be some levelling down, so, as ever, people need to save more.
There is widespread misunderstanding and some mistrust about pension provision. People need to be encouraged to make provision and any lost tax break, by accident or design, will have the opposite effect.