Robert Branagh of rpmi explains why education and engagement will play an essential part in dealing with the challenges facing the industry
We wish you a Merry Christmas... enjoy the break; the New Year is going to be quite a challenge for us all! With changes to tax along with the RPI/CPI ramifications in spring, preparation for auto-enrolment and getting data clean for 2012, the year ahead is going to be a demanding one. While we don't want to be all doom and gloom, especially at this time of year, we must all acknowledge the fact that there is a lot of hard work ahead for all pension professionals during a time of continued economic uncertainty. Although what we need to achieve over the next 12 months might still fill us with dread at the moment, we must focus on working towards meeting the objectives set.
Even though the industry has known about auto-enrolment quite a while now; almost four years in fact, we are still seeing limited preparation for the initiative amongst pensions professionals. But, the preparation by payroll and HR departments, whose involvement is key in ensuring the success of the scheme, is even more limited. In a recent survey carried out by rpmi, we found that two-thirds of payroll teams have yet to start thinking about auto-enrolment, a scary thought now that there are only 12 months to go until 2012. With other changes to be implemented in the meantime, is this the time to help our colleagues in payroll to ensure an easier transition or focus on our own needs?
Before we can start making the final changes necessary to prepare for auto-enrolment we need to ensure that our people, systems and members are ready for tax changes along with the move, for many schemes, from RPI to CPI. And that's on top of ensuring data is clean and fit for purpose with the introduction of The Pension Regulator's regulations! It is going to be a long hard slog to implement the changes necessary and make sure that all members are aware of what the changes will mean to them.
From experience, it is these sorts of changes that can really upset members - who are generally unsure of who to blame. Once again, as is the case in so many of the situations we all find ourselves in, we come back to the need for real member engagement and communication. Writing to members is no longer enough, we must communicate using a range of mediums including making announcements on member websites and fully briefing helpline staff who are generally our first line of defence. Caring and empathetic staff go a long way in allaying the fears of members and helping them to understand what will happen to their benefits. To do this, staff must have the knowledge to explain what the forthcoming changes mean for high earners, those receiving benefits and the implications of auto-enrolment for those that opt out as well as newly eligible employees.
With regard to time, we are all struggling to plan for changes that the government has introduced as part of the austerity drive, and therein lays another problem.
Austerity attitudes to pensions
It is not just the government that has austerity measures in place, individuals are looking of ways to save money too. With the increase in VAT at the start of 2011 along with anticipated reductions in benefits as a result of the change to CPI, will members look at their pension and think that it is no longer the benefit it once was? Even more frightening, will they take the view that it is not worth saving for, especially when money is tight?
In these situations, and faced with sometimes hard choices, pensions are normally the first financial saving to be sacrificed as members, understandably, use this money to meet their needs now, thinking that the future will be fine or is a long way off. The result of which could be that the state may be left supporting a financially ill-prepared generation in years to come and pension funds could be left to try and pick up the pieces now. If people do stop contributing towards their future by paying into an occupational scheme how much worse will the deficits of DB schemes become as a result of limited income? The consequence is that we continue to see a rise in member contributions and the start of a vicious circle as more people abandon their pension as they become more and more unaffordable.
Although this is from a final salary perspective, the same problems are apparent with DC schemes. As employers look for ways to save money, the onus is increasingly being placed on members to pay certain fees. This change, coupled with poorly performing stock markets, again makes future saving choices difficult for members and we end up in the same position.
So, is the future really as bleak as the recent weather? Once again we find that education and engagement is key to dealing with all the challenges we are currently facing. We need to use our knowledge as an industry to provide members with the information they need to deal with the initial changes affecting them before we help our colleagues in payroll departments to prepare for autoenrolment. While we understand the difficult decisions individuals must make regarding how to spread their money when dealing with job losses, debt and mounting bills, we, as a group, must educate members again to ensure they are thinking about their future and what is best in the long term rather than the here and now.
Facing the future
With all this in mind, and on a more positive note, what will the future bring? From an industry perspective, we will have access to clean, accurate member data that makes the everyday management of pensions much easier and, for the majority, easier calculation methods for working out benefit increases with only one index being used and more members in an occupational scheme.
For members, there will be more options and vehicles available to them for saving towards retirement and, if we all practice what we preach, much better member engagement from their pension providers and information from payroll teams; generally the member's first point of contact.
So, enjoy the Christmas break, work hard in the New Year and reap the benefits in the years to come!
Robert Branagh is managing director of administration at rpmi