INDEPENDENT PUBLICATION BY RACONTEUR.NET #0504 28 / 02 / 2018 WORKPLACE PENSIONS

FINANCIAL PLANNING TECHNOLOGY CAN BE WHEN DERISKING IS 03 TARGETS SAVINGS GAP 13 THE ‘WOW MOMENT’ 14 THE SAFEST OPTION

LOOKING for the key to PENSIONS ENGAGEMENT?

Discover how to unlock better retirement outcomes. Call 0344 573 0033 or visit aon.com/pensionsengagement

Aon Hewitt Limited and Aon Consulting Limited are authorised and regulated by the Financial Conduct Authority. Aon Hewitt Limited Registered in England & Wales. Registered No: 4396810. Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN. Aon Consulting Limited Registered in England & Wales. Registered No: 03127195. Registered Office: Briarcliff House, Kingsmead, Farnborough GU14 7TE. RACONTEUR.NET 03

FINANCIAL WELLBEING WORKPLACE PENSIONS Holistic fi nancial planning

Distributed in Navigating through to target savings gap Published in association with Employers and pension providers are increasingly off ering lifetime uncertain waters fi nancial planning in a bid to engage staff in saving for retirement for pension fund CONTRIBUTORS TIM COOPER broader workplace packages will become more common as compa- inancial wellness has become nies need them to attract the best TIM COOPER VIRGINIA a buzz phrase in the last few talent, he says. Award-winning MATTHEWS years. For employers, it refers Mr Tran says Willis Towers sponsors, trustees freelance financial Freelance writer to anything that supports the Watson’s research shows that the journalist, he and editor, she Ffi nancial security of their employees way to improve engagement with writes regularly for contributes regularly Grigoryeva/Shutterstock Yulia publications including to the national and and often involves a move from nar- wellness programmes is to use new The Spectator, London specialist press on row benefi t packages to wider and technologies together with an eff ec- and individuals Evening Standard, a range of business, more fl exible programmes of bene- tive communication strategy across Guardian Weekly and education and fi ts and education. multiple platforms and channels, Weekly Telegraph. consumer topics. A host of recent research has including mobile, PCs, paper based, shown the impact of fi nancial well- group presentations and one-to-

being issues in the workplace. For one sessions. PÁDRAIG FLOYD example, a recent report by the The REBA survey confi rms that Former editor in chief of the UK pensions and Reward and Employee Benefi ts the role of technology in holistic investment group at the Association (REBA) showed that 25 planning is set to increase. It shows Financial Times, and per cent of employees say that fi nan- that 19 per cent of employers have ex-editor of Pensions cial concerns aff ect their ability to a wellness technology platform in Management, he is now a do their job. place, but 61 per cent have one in freelance business writer. The 2017 Willis Towers Watson planning or development. Global Benefi ts Attitude Survey Andy Woolnough, human resources also highlights a direct correla- and payroll solutions director at soft- tion between employees’ fi nan- ware fi rm Equiniti, says: “To help win cial concerns and performance at and keep the best talent, employers work through sick days, produc- have become more proactive in recog- tivity or engagement. The survey nising the diff erent needs of diff erent says employees are looking to their generations in their workforce. employers for support. Some are fi nancial advice fi rms provide paid- says provision of holistic fi nancial “People analytics – technology responding with programmes that for seminars and personal advice for planning is increasing, but from that uses data to link ‘people strat- support fi nancial wellbeing, but those who need it. Technology com- a small base of early adopters. He egy’ to wider business strategy – is employees are lukewarm about what panies provide digital education agrees that employers are increas- a growing part of that. Software they have seen so far and engage- platforms that provide individual- ingly aware that helping address can also give people individual- ment remains low. ised insights and prompt employees fi nancial worries should promote ised information in the right time Meanwhile, wellness product pro- to action at appropriate moments. a more engaged and healthy work- and context for them, and meas- viders talk of an explosion in the Others provide wellness content force, and so attract talent. ure the value of each strategy market over the last few years. A sur- linked to products such as loans and Mr Tran says providing a wider more precisely. Plus it can make vey by workplace fi nancial educa- savings accounts, perhaps at a nego- choice of fl exible, alternative sav- finance more user friendly with Publishing manager Head of production tion provider Nudge Global showed tiated discount for the employer. ings, such as workplace individual techniques such as gamification Reuben Howard Justyna O'Connell a signifi cant increase in employers “The challenge for employers is that savings accounts, general invest- [making software work like a com- providing a fi nancial wellness pro- they need help understanding which ment accounts and even debt facil- puter game].” Production editor Digital content executive Benjamin Chiou Elise Ngobi gramme between 2013 and 2016. In platforms, interventions and semi- ities, helps maximise the impact Rory Murphy, chair of the Merchant 2016, 45 per cent of companies had nars they need, and who will pay for of existing benefi ts budgets. It also Navy Offi cers Pension Fund, agrees Managing editor Design a fi nancial wellness programme or them,” says Mr Butler. “Each fi rm’s recognises the diverse needs in the that companies will off er more holis- At a time when past performance is not always an accurate predictor Peter Archer Grant Chapman were implementing one, up from needs are diff erent. For example, if workforce, which should improve tic planning as awareness grows. Kellie Jerrard 26 per cent in 2014, and 50 per were you employ lots of millennials your employee engagement. In future, However, saving for retirement is of the future, collaborative and innovative advice to pension fund Samuele Motta considering it, up from 20 per cent. needs will diff er from companies he expects tax-effi cient fi nancial still a crucial part of fi nancial well- trustees and corporate sponsors has become even more necessary. Head of design But some of these programmes with lots of part-timers, older workers advice using the recently intro- ness for everyone and it needs to start Tim Whitlock are still narrow and there is room or gig economy workers. Public sector duced pension advice allowance early. There is a danger that greater for progress towards holistic fi nan- diff ers from private and so on.” will also be popular. fl exibility will be at the expense of Our aim is to give you a clear and informed view on the right cial planning covering all the areas Minh Tran, director at benefi ts There may be some short-term pension provision, leaving employ- strategy and approach for your pension fund and with a focus on that employees need help with such consultant Willis Towers Watson, obstacles but, in the long term, ees with insuffi cient retirement sav- Although this publication is funded through advertising and as debt, pensions, saving, tax and ings later in life, he says. delivering positive returns for members, trustees and sponsors. sponsorship, all editorial is without bias and sponsored features insurance. In 2016, 96 per cent of Financial advice will also help are clearly labelled. For an upcoming schedule, partnership companies wanted to provide holis- support wellness and Mr Murphy inquiries or feedback, please call +44 (0)20 3877 3800 or email tic fi nancial education, but only 42 says companies should off er it For an initial discussion on your pension fund issues, please contact [email protected] per cent did so. using the new allowance. “I expect Raconteur is a leading publisher of special-interest content and Financial wellbeing expert they won’t because they tend to our UK Head of Pensions, Jeremy May: [email protected] or research. Its publications and articles cover a wide range of topics, Jason Butler says: “I detect a much average amount accumulated in a focus on short-term profi ts and including business, fi nance, sustainability, healthcare, lifestyle and pension by 2017, up from £36,000 +44 (0)121 232 2165. technology. Raconteur special reports are published exclusively in stronger awareness that fi nancial shaving costs,” he says. “But the the year before The Times and The Sunday Times as well as online at raconteur.net wellbeing solutions are an impor- £ k evidence shows that if you invest The information contained in this publication has been obtained tant part of recruitment and produc- 50 in and look after your staff , you will www.pwc.co.uk/pensions from sources the Proprietors believe to be correct. However, tivity. But I’m less convinced that it get a better return in productivity. of the UK do not know no legal liability can be accepted for any errors. No part of this is translating into signifi cant tangi- Enlightened companies with well- population now what level of publication may be reproduced without the prior consent of the ble action.” being programmes that include Publisher. © Raconteur Media expect to stay in retirement He says many good tools and ser- 25% full-time work 56% income they fi nancial education will tell you vices have become available to past 65 will receive that their productivity is increasing © 2018 PricewaterhouseCoopers LLP. All rights reserved. @raconteur /raconteur.net @raconteur_london support wellness. For example, Aegon 2017 5 to 10 per cent.”

raconteur.net /workplace-pensions-2018 04 WORKPLACE PENSIONS RACONTEUR.NET 05

Commercial feature Commercial feature

Which of the following do How much do I have in my pension pot? What will be most important when I retire? you feel your employer should prioritise for your Extra money 51% DC pension? 44% 21% to enjoy have no idea could hazard a guess Tools Member outcomes % to stay Money for 50% 15 informed and the unexpected Finger on educated should be Not outliving 46% Cost 24% money the priority % effective 11% believe they 17 (cheap) believe they know exactly the DC Pulse know roughly Increased engagement, clarity around Maintain living contributions, and a focus on value Changing pension options have put standard 42% savers in the driving seat. When did you can improve a scheme’s success

last think about your fi nancial future? Simple-to- % understand Afford long- 35% 23 investment term care Claire Felgate choices BlackRock head of UK DC t’s time for a revamp around the Saving for later How much should I notion of retirement. We’re living Retirement savings have changed sig- be putting in? longer and have more fi nancial nifi cantly in a generation. When once choice than ever before. Rather than employers were relied upon to pro- with no jargon and with their own individual’s personal engagement I Take care 32% What was the most surprising fi nding the beginning of the end, “retirement” vide pension benefi ts (defi ned bene- of kids of the 2017 DC Pulse survey? branding, people are far more likely and contribution levels. can be whatever we want it to be. But fi t), the onus is now fi rmly on the indi- % The difference in opinion between to engage. That said, we work with employ- this freedom comes with a responsibil- vidual to grow and manage a nest egg 43 schemes and members. Schemes ers and trustees every day who are ity to save for our future selves so we for their future provisions (defi ned of participants do not know were very honest about how confi - What about contribution rates? breaking new ground on investment can have that fi nancial freedom. contribution or DC). what their contribution dent they are about defi ned contri- Central to engaging people is ensur- ideas to benefi t their members, such Many of the previous certainties But pensions can appear dull Focus on level should be Leave 22% bution (DC) members’ prospects. At ing they understand the importance as incorporating stronger environ- around retirement are changing. People or complex to most people and % getting a legacy least four in fi ve admitted they could of contribution rates. There’s a huge mental, social and governance views. used to work until 65, at which point ever-moving goal posts have added 45 good not guarantee positive outcomes. danger that members are overes- the state pension would kick in and layers of confusion. returns Driving engagement appeared to be timating their contributions, but What is your view on cost of owner- retirement would begin. If they had a Our DC Pulse survey1 has shown that their biggest concern, but a large schemes could be doing more also. ship for investments? good employer, they would be likely to engagement is low and confusion Should the government impose a minimum proportion felt that education tech- Matching – “You put more in and we Value for money has rightly become receive an income equivalent to a per- high. We asked 500 members of DC niques didn’t have the desired effect. will match your extra contribution” very important to DC schemes. centage of their earnings. But longer life schemes how they interact with their mandatory contribution rate for retirement savings? Will I achieve the retirement lifestyle I want? In contrast, a lot of scheme mem- – and auto-escalation – automat- Often, clients will ask me what value expectancy, rising debt levels and a less scheme and how confi dent they are bers recognised the importance of ically increase your contributions for money really means and I defi ne linear study-work-retirement pattern about their futures. saving for the future, but were unsure by an agreed amount each time you it as achieving your objective in the are blurring this clarity, and refashion- There were two main areas of con- % of the necessary steps to take. One of get a pay rise – are both proven ways most cost-effective way. ing the traditional notion of retirement. fusion – understanding how much 71 the biggest surprises was that most to motivate people to put more into There are two elements. Firstly, For example, over-50s now account for income their nest egg will provide in people already in a scheme would their pot. schemes need to have the right nearly half those setting up their own retirement and then translating this believe it’s a good idea like the government to impose a min- objective. Secondly, they need business and pension schemes need to into how much to save today. 28% imum mandatory contribution. This transparency on charges and costs Confident refl ect the new landscape. highlights a working population who to see whether they are reaching In many ways this change is liberat- “How much income will I get?” know they need to save, but want to their objective as cost effi ciently ing. The pressure to have completed Fewer than a third of members sur- % be told how much and given a helping as possible. studies by a certain age or stop work veyed felt they were on track to live hand to do so. Clients will ask The cheapest option doesn’t neces- because of an arbitrary number no the lifestyle they want in retirement. 29 33% 39% sarily offer the best value for money. longer dominates. Our longer lives This is because they don’t know how believe it’s not Not on track Unsure What else surprised you? me what value The focus should be delivering out- mean we will have more opportunity much they need in their pension pot a good idea The disconnect between what mem- comes for members. The objective in to reinvent ourselves and pursue new to give them enough income after they bers prioritise from their pensions for money really early years may be getting the high- BlackRock DC Pulse survey 2017 avenues. But to do so, we need to save. retire. Telling someone they might have and what schemes thought they want means and I defi ne est risk-adjusted return to grow the We need short-term savings to cover half their current income in retirement also came as a surprise. Schemes size of the pot. In later years it may life’s bumps and scrapes, and medi- is a lot easier for them to grasp than have focused on simplicity in the it as achieving your be protecting against market losses um-term savings for life moments such telling them they’ll need to build up a Age of “auto” savers to pre-select a percentage of idea about the default fund in which communications and contribution hope it would engage more people, so the pot size is more stable towards as marriage, home ownership or chil- £400,000 retirement nest egg. The introduction of auto-enrolment future pay increases that will auto- most members’ money is invested. incentives. To impose a less sophis- but simple messaging shouldn’t objective in the most retirement. Once clear objectives are dren. We also need long-term savings For many, it might be (AE) has arguably been the boldest step matically be invested in their pension However, when we asked people what ticated approach upon the default translate to simple investments. cost-effective way established, schemes can then look for the stage in life where we no longer “How much should I be putting in?” in helping people to save. But minimum pot. The effect can be boosted if the they wanted most from their employer runs the risk of creating sub-optimal We found that nearly half the par- at how they get there in a cost-con- can or want to rely on paid income. The second area of confusion for savers a case of starting with contributions under AE still fall far employer matches any increased con- or scheme, they were twice as likely portfolios. In a rapidly changing world, ticipants wanted their employer to scious framework. was how much they should be putting in something less and then short of what is realistically needed for tributions made. (45 per cent) to want a focus on good where the concept of retirement is prioritise returns and that’s some- I believe transparency around costs their pension pot. This is not surprising, a comfortable retirement. Auto-escalation, which can be tai- returns as they were to want sim- being remodelled, investment strate- thing we feel a number of schemes and fees is very important so that cli- given people struggle to estimate how building up to a higher As a broad rule of thumb, pension lored to a number of factors such as ple-to-understand investment choices gies must keep pace. should revisit. What is the difference in employ- ents know what they are paying for big a pension pot they will need. Fewer contribution rate savers should be targeting an aver- age, time to retirement and afforda- (23 per cent). ers’ approach towards DB and DC and can judge if it’s cost effective. than half the people we surveyed knew age 15 per cent of their earnings to be bility, would see people making This is why a scheme’s default is so What is the biggest obstacle DC schemes? Key to this is being able to distinguish Only % how much they should be contributing put away for their future. Much of this signifi cantly higher contributions in important. Typically, more than eight For more information please email schemes face? The single biggest difference between charges and costs. There 28 and there’s a huge danger that mem- depends on personal circumstances an incremental and relatively pain- in ten scheme members will be in the I think it’s twofold. Firstly, education between defi ned benefi t (DB) and are a number of charges which come [email protected] of members surveyed bers are overestimating how much they and how much they want to maintain less way. default, so employers must make sure and engagement are huge obsta- DC schemes is who takes the risk. DB from an asset manager, a platform felt they were on track are saving for their retirement. start, the more they will benefi t from their standard of living, but it can be a it’s fi t for purpose. cles for schemes. Secondly, more DC schemes place the investment risk and any advisers involved. Separate Contribution rates are the next great each year’s growth. good place to start. Importance of simplicity We believe schemes should reserve schemes need to look at how they with the employer, while DC puts the to those explicit charges are the costs challenge for pensions. Both indus- People recognise that contributions Let’s also be frank, 15 per cent is While contribution levels are the their focus on simplicity for member can help their members, even if they employee fi rmly in the driving seat. to trade underlying assets in a fund – 1 BlackRock DC Pulse survey, conducted in association try and government have a key role to play the biggest role in growing their probably too much for most to con- main driver of returns, the invest- don’t engage. This can sometimes translate into transaction costs. with research agency Illuminas in July 2017 amongst a nationally representative sample of 500 UK residents, play in helping employees to become pension pot, which is encouraging. But sider contributing initially. For many, it ment returns achieved are also very This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommen- Most scheme members cited hesitancy to get too involved in the This year will be about help- aged 30 to 69 years old, earning £10,000 or more and who dation, offer or solicitation to buy or sell any securities or to adopt any strategy. Issued by BlackRock Investment have or are contributing to a Defi ned Contribution work- more aware. There needs to be a push we also know that people are on aver- might be a case of starting with some- important. The reality for DC funds Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered offi ce: 12 simple, personalised communica- investment side for DC. The danger is ing clients to understand fully all place scheme. Scheme fi ndings based on interviews with Throgmorton Avenue, London, EC2N 2DL. Registered in England No 2020394. Tel. 020 7743 3000. For your protection, trustees, independent governance committee members to make people understand the impor- age contributing just 4 per cent of their thing less and then building up to a is that the vast majority of scheme telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. tions are more likely to capture their that employers can view DC schemes these costs and charges, so they or investment teams of 41 FTSE 350 public sector organ- tance of saving today to cover tomor- salary, which is far below the recom- higher contribution rate. This is where members leave this crucial part to © 2018 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, interest. We know that if companies as a framework, and the success can evaluate the value for money isations. The results of this survey are provided for infor- SO WHAT DO I DO WITH MY MONEY and the stylised i logo are registered and unregistered trademarks of BlackRock, mation purposes. row. What’s more, the earlier they mended level. auto-escalation can help. It allows the employer and most have little Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. explain pensions in simple terms of it very much comes down to the being delivered. 06 WORKPLACE PENSIONS RACONTEUR.NET 07

Commercial feature POVERTY

99% Unsplash / Whitehead Craig of HR professionals thought it was important to increase employees’ understanding of retirement savings

Aon Benefits and Trends Survey, 2018

stages of their full-time working lives will typically have quite different issues in mind as they look to the future and assess their pension options. “From a contribution point of view it is pretty much too late to begin for Pensioners the baby boomers, and their consid- erations are much more about what benefits have been built up, and when and how to retire,” Ms Singleton says. faced with “The aim for employers here should be to ensure that these decision-making processes are as straightforward and painless as possible.” poverty… To help baby boomers, good support would include pre-retirement educa- tion, good guidance around flexibility Failure to save enough for their retirement, and drawdown, and advice on future investment strategies into retirement. coupled with an inadequate state pension, Although these three character groups illustrate and typify some key is leaving millions in pensioner poverty ideas around pension needs, it is also very clear that the diversity of con- cerns among individual employees needs to be considered seriously by Singleton, head of DC (defined con- employers of all sizes. Last December, the DWP’s own Sir Steve – there are fears that drop- is a missed opportunity in the fight tribution) consulting at Aon. “So the Improved communication by employ- VIRGINIA MATTHEWS review of auto-enrolment found that out rates among the 55-plus age against pensioner poverty.” challenge for employers is to empha- ers does not necessarily mean send- some 12 million Britons or 38 per group may continue to rise. Going to work solely because the For Sir Steve, another major area Workplace pension sise the benefits of workplace pen- ing out more regular emails. “You can illions of people will be cent of the working population over- “When you look at this issue in of concern is the decision not to sions and the idea that increasing actually overdo this,” Mr Parish says. “So forced to either retire in all are still failing to save enough for more depth and realise how many state pension isn’t enough to live include the country’s 4.8 million your contributions early, especially if you need to make your communication poverty or “work until they a comfortable retirement. people in this country have liter- on and your personal pension is self-employed people, many of them they’re being matched, can really pay timely, meaningful and targeted.” drop” unless the govern- Although overall opt-out rates ally never saved, let alone saved for in the older age bracket, in auto-en- outcomes depend on off later in life.” Timely communication means Mment goes further and quicker with its for the new pension savings sys- retirement, you begin to realise how puny isn’t a good state of affairs rolment at this stage. Successfully helping this group reaching individual employees at programme of pensions reform. tem have been generally lower big a problem we are building up for According to recent data from includes encouraging them to reg- key junctures in their working lives. So says Sir Steve Webb, who as than expected, workers aged 55 the future,” he says. the Office for National Statistics, ister for online access and encour- These moments are when people are pensions minister under David and above are three times more Aegon head of pensions Kate as many as 45 per cent of self-em- shared engagement aging higher contributions. This can most likely to consider their pension Cameron was a prime mover in the likely to drop out than younger Smith believes that older work- luxury of several decades in which ployed people aged between 35 include communicating the benefit of situation and think seriously about introduction of the Department colleagues, even though current ers represent a “lost generation to build up a decent fund for later and 55 have literally zero pension the company contribution and the tax their finances. for Work and Pension’s (DWP) flag- minimum contribution rates are who have been left behind” by the life,” she says. wealth; a finding which Sir Steve Outcomes delivered by employer pension schemes depend more breaks, and educating on the benefits “It’s in these moments when employ- ship auto-enrolment scheme six just 1 per cent each for employees recent pension changes and she too “For the millions of workers who describes as “truly shocking”. of compound interest through invest- ers need to be able to reach individuals years ago. and employers. urges the government to do more to had fully expected to retire in the For Aviva’s head of retirement than ever on levels of engagement, so companies must create good ing at an early career stage. But it also with tailored information, and be clear Now director of policy at Royal With two contribution price hikes help them. comparatively near future, but who solutions policy John Lawson, there includes being realistic and providing they can access much more detail and London, Sir Steve believes that already on the horizon – they rise “We hear a lot about millenni- can no longer afford to, the outlook is much to celebrate in the new work- quality schemes and successfully communicate their benefits education on how to tackle debt as guidance,” Mr Parish says. unless minimum contributions to 5 per cent in total in April and als being short-changed by various is very different. When you add place pensions landscape, however. they may need to do this before they Delivering resonant, timely mes- to workplace pensions rise to “a to 8 per cent in April 2019, sums policies, but in terms of auto-en- in the burden of expensive caring “It’s a great shame that so many can start saving. sages and underpinning them with more realistic level”, maintaining a described as “wholly inadequate” by rolment, they do at least have the responsibilities, you begin to see people in their 40s and 50s think Meanwhile, gen Xers exemplify the easy access to highly personalised decent income in retirement will be that we have a perfect storm.” they are too old for auto-enrolment hile auto-enrolment enough to motivate engagement. These characters are categorised as types of people who are mid-way information is now a fundamental beyond the reach of many. Although equity release lending because nothing could bee further in workplace pensions A recent Aon survey found that 99 being millennials, generation Xers through their careers, often with a part of providing high-calibre work- “There are literally millions of broke through the £3-billion bar- from the truth,” he says. Poverty rates in selected countries means higher employee per cent of human resources profes- and baby boomers, showing how the family, some of whom may have trig- place pensions. Using the right tools people in their late-40s and 50s who 66 and older rier for the first time in 2017, Ms “Unless you have high-interest take-up, this does not sionals thought it was important to key considerations around workplace ger events, such as having recently and providing appropriate informa- are too young to benefit from the Percentage of the older population and total population whose income is Smith advises homeowners look- debts such as mortgages, which W below the poverty line, defined as half the national median household income Total population necessarily equate to staff engagement increase employees’ understanding pensions change as time goes by. been given a pay rise. This is a timely tion and guidance can make all the lucrative final salary or defined ben- ing for a quick cash injection to should always be paid off first, or a true understanding of the options. of retirement savings. However, only “Millennials might look at workplace moment for the sponsoring employer difference to outcomes. All this is efit (DB) pensions which are either tread cautiously. auto-enrolment is an absolute no For employers, improving engage- a quarter of businesses have a related pensions and engage with them in to help them to consider their pen- much easier when pension schemes now closed to new members or being 50% “Selling equity in your home brainer, particularly if you are for- ment includes putting in place the right employee value proposition. only a limited way because they’re sion strategy more carefully. utilise modern, engaging technology shut down,” he says. not only deprives your children of tunate enough to have an employer scheme, appropriate charges, strong “It is crucial that employers think more concerned with their student “This type of person is likely to be platforms such as those used in Aon’s “Yet many of these older workers becoming homeowners, but may be who will match your contributions governance, excellent member educa- carefully about how they communi- debt or taking home as much of in a workplace pension, but per- MasterTrust or in its BigBlue Touch may already be too old to build up a 40% wholly inadequate when it comes above and beyond the minimum.” tion and communication. For employ- cate their messages around work- their salary as possible,” says Sophia haps without really having thought Group personal pension offering. decent sum from what has replaced to funding 20 or more years after While Mr Lawson agrees that ees, it is important to start early, place pensions to ensure maximum about what it all means and what DB, the so-called defined contribu- retirement,” she says. for those already close to pension 30% understand key decisions and options, involvement from staff,” says Mr eventual outcomes would be good tion schemes which tend to be far Although the DWP’s decision age, a workplace pension may not and regularly monitor fund values. Parish. “Even if employers create a to aim for. This is where employers To find out more about how to struc- less generous.” to lower the minimum auto-en- be sufficient to fund an entire “Delivering desired outcomes great scheme and put a lot of time and can step in to provide valued guid- ture your pension schemes, increase While Sir Steve says he is in favour 20% rolment age from 22 to 18 earns lifestyle, he believes opting out remains a question of shared respon- effort into it, then it isn’t worth much ance and support,” says Ms Singleton. engagement and improve outcomes of people working longer if they praise from Ms Smith, she believes on age grounds alone may be a sibility,” says Martin Parish, workplace if the employees then still ignore it or Successful support here might con- please call 0344 573 0033 or visit want to, being forced to stay on the that obliging workers to opt back costly mistake. pensions proposition lead at pensions only make minimum contributions.” Using the right tools and sist of financial wellbeing educa- www.aon.com/pensionsengagement treadmill purely to pay the bills is 10% in once they hit state pension age “Whether it’s augmenting the state and benefits consultancy Aon. It can be helpful for employers tion, including for the wider family, another matter. is a mistake. pension, doing up your kitchen or It is increasingly important to to begin by considering the vari- making the right investment strat- “Going to work solely because the “Many more people are enjoy- having a holiday, building up cash providing appropriate 0% focus on tailoring pension commu- ous members of their pension plans egy information available and illus- state pension isn’t enough to live ing longer working lives and they through auto-enrolment can help nications to match the life stages and and their respective needs in broad information and guidance trating the potential outcomes of on and your personal pension is UK should be included in auto-en- retirement run more smoothly,” he South Spain financial considerations of scheme terms. As such, Aon illustrates the increased contributions. puny isn’t a good state of affairs for France Estonia United rolment just like other workers. says. “In my view, auto-enrolment can make all the difference Denmark Germany Australia Korea States members. This is because a one- different needs using several fic- Meanwhile, baby boomers and individuals, or for business or soci- Removing the younger age limit, rates among the 50-pluses should size-fits-all approach is no longer tional, typical employee characters. to outcomes anyone getting towards the latter ety,” he says. Latest available data between 2013 and 2016 OECD 2017 but leaving the older one in place already be at 100 per cent.” 08 WORKPLACE PENSIONS RACONTEUR.NET 09

$400trn +5%

SIZE OF THE GLOBAL RETIREMENT SAVINGS GAP Shortfalls in pension savings in eight of the largest established pension systems* HIGH PERCENTAGE OF INFORMAL WORKERS

Nine out of ten Indian workers are currently in +5% the unorganised sector with limited access to retirement savings accounts AFFORDING 140 KEY

2050 gap

130 2015 gap +7% Annual growth of gap

120 Expected retirement income sources, by country OLD AGE 110 Longevity is increasing and is set to put a growing population of retirees under Own saving and investments RISING DEFICITS

immense stress in the coming decades as people struggle to pay for their Current/previous employer schemes The United States currently has the largest 100 shortfall, at $28 trillion in 2015. Looking retirement. Life expectancies have risen by an average of three years per decade State pension/schemes ahead, the gap is growing at a rate of $3 since the 1940s and, while retirement ages are gradually increasing, people are trillion each year, which is equivalent to fi ve Expected retirement age +10% times the annual US defence budget spending longer not working without the savings to justify it. This has created a 90 $70-trillion pensions timebomb in eight of the world’s largest economies, which could swell by nearly six times by 2050 80 PENSIONS REFORMS

$trillion 70 Many countries have chosen to combat funding issues by raising the state retirement age or, in the case of the UK, introduce RETIREMENT IS A BIGGER FINANCIAL WORRY FOR OLDER EMPLOYEES compulsory workplace pensions schemes, Percentage of employees who selected the following as their biggest fi nancial worry... 60 RAPIDLY AGEING POPULATIONS though this won't completely alleviate the problem as longevity continues to increase There are expected Concerned about immediate 50 to be more than 600 issues today million retirees in China and India collectively by 2050, as the Concerns for retirement 40 pensions gap in the two +4% countries explodes +2% Concerns for others 30

Under age 50 Saving for home 20 +5% Aged 50 and over +5% +4% No worries 10

0% 10% 20% 30% 40% 50% 0 Mercer 2016 Australia Canada China India Japan Netherlands UK United States TOTAL

Globalpopulation aged over 65

$400 TRILLION 20% The size of the 1.5bn 2.1bn 26% 29% pensions gap % 32% in these eight 48 35% 34% 35% countries stood at of the global retirement-age population $70 trillion in 2015, currently do not receive a pension 43% of which 75 per cent is attributable 17% 38% 32% to defi cits in Number of of global workers government-funded workers are in the informal/ 29% state pensions and per retiree unorganised sector 26% 26% 25% schemes for public %+ employees. As 50 longevity continues to rise, this pensions World Economic Forum 2017 30% shortfall is expected 8 4 to reach $400 trillion "best-practice" by 2050, equal to life expectancy of around fi ve times the size of the current someone born in global economy 2007, compared 103 39% 40% 40% 27% 50% 42% 42% 42% with 94 for those born in the 1970s 2017 2050 The 100-Year Life/ and 85 for those Human Mortality 65 65 56 60 65 67 66 65 Mercer/World Economic World Economic Forum 2017 Database 2016 born in 1940s Forum/Aegon 2017 10 WORKPLACE PENSIONS RACONTEUR.NET 11

AUSTRALIA Commercial feature

Longevity risk, or living longer than Guarantees are difficult to pro- your money lasts, has been managed vide in the current environment for generations in the UK with annu- of low interest rates relatively low ity products, which deliver guaran- inflation, says Mr McClymont, as georgeclerk / Getty Images teed income until death. Australians they rely on government bonds, receive their pensions via products, which are notionally risk free which keeps the money invested among developed nations, but in markets with payments lim- quantitative easing has driven ited by how much growth the fund down their rates and so annuities has experienced. have also been low. As a result,

As longevity has extended life- fewer consumers are buying annu- times, the lack of a guarantee ities, unless they wish to secure a causes many Australians to fear liv- guaranteed income. ing too long rather than dying too The Australian government has young. This has resulted in many just formed a working group to becoming excessively cautious, tackle the concerns of longevity risk reducing the amount they with- and develop a framework response draw for income. focusing on making sure Australia’s superannuation system delivers more secure retirement income. Is Australia A member of this group is Jeremy Cooper, retirement income chair- man at Challenger, the only annuity Australians provider in the country, and author the ‘super’ understand that they of the 2010 Cooper Review, which must take personal delivered a number of reforms to the Australian superannuation sys- Glide into comfortable responsibility for tem. “People are building up pretty provider? decent plans,” says Mr Cooper, “but longevity risk, even is difficult then for them in a default in a country that is environment to make choices about retirement years Pension provision law, comparisons are often drawn their income in retirement.” between the UK and Australia. comparatively young One model being discussed is in Australia Just how useful these comparisons for a new collective approach to The glittering prize of retirement often seems too far ahead to are is moot. “There are two meas- securing retirement income, which surpasses current ures to look at and they are contribu- may require providers and super warrant consideration tion rates and coverage levels,” says “The biggest mistake the Australian funds to enter into a risk-sharing arrangements in David Harris, managing director at model made was to focus on getting arrangement with their members the UK, so are there Tor Financial Consulting. “Everyone people to save and put off what to and customers. earning more than A$450 a month do about delivering the retirement Its early days, but without an lessons to be learnt? is captured by ‘super’ [superannua- income,” concedes Mr Harris. But it annuity market in Australia to fall f you are to make the most of your Now the vast majority of retir- Our total wealth is no longer neatly tion] in Australia, while the low paid isn’t Australia’s problem alone. What back on, the recommendations may hard-earned savings and pension, ees will be using some level of draw- divided into income and savings, earn- are excluded in the UK.” to do with pension savings in retire- be quite radical. you need to start planning a long time down rather than buying an annuity. ings and annuity. Instead, we are more Contribution rates have reached ment is a problem experienced by all Though Australia faces the same Ibefore you crack open the bubbly. It may therefore be preferable to stay likely to take a mix-and-match approach. 9.5 per cent in Australia, though ageing populations. problems in providing retirement “There are decisions often to be invested, at least partially, in equities. That means the decisions never stop only paid by employers, with legisla- The trouble is no system, with income as every other developed made up to ten years before you retire,” After all, retirement has a much longer coming, and fi nancial guidance and PÁDRAIG FLOYD tion passed to increase this to 12 per the possible exception of Chile nation, it has “grasped the nettle says Jonathan Watts-Lay, director at time horizon than previously and the advice is needed not only in the years cent by 2025. with a simple structure and state- and done hard yards”, according to WEALTH at work, a leading provider old adage that pensioners did not have leading up to retirement, but most cer- he UK’s final salary or Although the UK’s auto-enrol- run clearing house for annuities, Mr Harris. of fi nancial education, guidance and the timeframe to invest in stocks and tainly at retirement and beyond. defined benefit pension sys- ment (AE) has greatly improved cov- rates and perhaps, even, the economy Australian pension fund money. That confidence has influenced has succeeded in delivering pre- However, just as Australia cele- advice in the workplace. “It’s important shares no longer holds good. tem was once the envy of the erage with more than nine million as earnings are reduced,” he says. The reason it can do this is simply Australia’s greatest achievement dictable retirement income where brates 25 years of compulsory super, to understand your options so you do Today’s pensions have an unprece- world. However, that “gold- enrolled as of January 2018, contri- “Australia has done this over the past because of the scale of the Australian which has been engagement. Super defined contribution schemes are the rollout of the UK’s AE programme not squander your hard-earned retire- dented level of fl exibility that can work Tplated” pension scheme, which will bution rates remain minimal. The 25 years and so people have had a long system, says Paul Leandro, a partner is largely understood and supported the dominant structure, says Gregg reaches its conclusion by covering all ment savings through poor decisions.” to an individual’s advantage, but that Consulting an provide the backbone of retirement UK government is aware this will time to get used to the idea.” at Barnett Waddingham. “One char- by savers, and with good reason, McClymont, retirement head at scales of employer. Most commenta- Key to the process is understanding fl exibility can mean an unprecedented income for the baby-boomer gener- not provide a meaningful income Australian super funds have done acteristic of the Australian environ- says Dianne Day, who worked on Aberdeen Standard Investments. tors see this as the perfect opportu- the pensions glide path – the invest- level of confusion. Mr Watts-Lay com- adviser could help ation, has had its day and the UK’s in retirement and plans are in place a good job at investing their mem- ment is size and very large-scale super in Australia and is now cli- In recent years, the UK has moved nity to push the project forward. ment decisions that need to be taken ments: “Many employees need a help- you discover matters claim to a first-class retirement sys- to increase contributions from both bers’ money. The sheer size of the industry funds can effortlessly bring ent director at Independent Trustee away from annuity products, which “The next step is to clarify the over time, before retirement. This ing hand to work through their income tem is no more. employers and employees. market – Australian super now tops in huge amounts of assets through Services in the UK. were considered to offer poor value, objective of the workplace and pri- process used to be automatic and options at retirement. aren’t as bad as Britain now languishes 15th out of However, because the employee A$2.3 trillion – has enabled invest- compulsory contributions,” says “They are motivated by a funda- to income drawdown. However, vate pension system, and share that aimed at an annuity outcome. Pension “By providing fi nancial education and 30 in the Melbourne Mercer Global has to pay into the scheme and is not ment managers to innovate in areas Mr Leandro. mental driver that as the population this leaves the individual bearing message with members,” Ms Day at schemes would gradually move invest- advice in the workplace, it can help you thought Pensions Index, a league table of compelled to remain but can opt out such as infrastructure, which can It’s not all about size, but also a ages, the likelihood of them being all the investment risk in later life Independent Trustee Services con- ments from riskier equities into safer individuals to avoid mistakes, such as developed nations’ pension systems, periodically, Mr Harris believes the generate attractive income streams bit of luck as, unlike the rest of able to draw a state pension and rely unless they can secure a guaran- cludes. “Then we will have more bonds and cash as the retirement paying too much tax or buying inappro- which for some years Denmark, the pace of increases will have a detri- over 20 or more years. the world, Australia has not expe- on public health services is reduc- teed income. motivated retirement savers.” date approached, so retirees were priate products, and ensure pension Making these decisions often Netherlands and Australia have led mental effect on the AE project. Many super funds now invest heav- rienced a recession for 26 years, ing,” she says. “Australians under- protected from market shocks before scams are avoided. As well as providing requires a long hard look at some of the in a class of their own. “The promise of getting up to 8 per ily in infrastructure, even in the UK, longer than super has been in stand that they must take personal buying an annuity. individuals with the support needed, it less pleasant facts of life, which is why Due to cultural similarities cent contributions in the UK has to with Leeds Bradford and Manchester place. This, says Mr Harris, has responsibility for longevity risk, can give a level of comfort to employers many of us prefer not to think about it. and the fact the pensions sys- be looked at in the context of what airports, Thames Water and Angel helped the system bed in and pro- even in a country that is compara- and pension trustees. It is not easy to face up to an income tem was codified based on British will happen afterwards to opt-out Trains partially or wholly owned by vided public confidence. tively young.” “What individuals need to understand shortfall or the need to keep working is their total wealth, and that a pension for longer than we thought. But prob- pot is potentially one of several assets lems don’t get any better for being % % and income streams at retirement.” ignored and consulting an adviser 9.5 12 For example, many people may have could help you discover matters aren’t current level of employer Australian minimum contributions to Australian level by 2025 built up a variety of pensions with dif- as bad as you thought. superannuation funds ferent companies; they could also have By looking at your options early on, savings in ISAs, not to mention wealth you can begin to make the necessary tied up in their home. It may be possi- decisions and give yourself time to ble to blend the income streams from glide into a comfortable retirement. 3% different sources to reduce or even % % avoid income tax altogether. 1 3 It may be worth transferring a fi nal For more information please visit current minimum level of UK minimum salary pension into a defi ned contribu- www.wealthatwork.co.uk employer contributions to level by 2019 workplace pensions in the UK tion scheme to increase fl exibility, but that could be the worst decision you’ll Jonathan Watts-Lay ever make; it all depends on your per- Director, WEALTH at work sonal circumstances. 12 WORKPLACE PENSIONS RACONTEUR.NET 13

OPINION COLUMN FINTECH

‘It is time for the pensions industry to catch up with Technology can be the modern world’ the ‘wow moment’

onsider two regular peo- Chris and Lynn need access to Despite some successful take-up, pension funds must ple: Lynn, a 32-year-old their retirement savings in one architect in Bournemouth, place. The pensions dashboard, an invest more in fi nancial technology to engage savers and Chris, a 43-year-old initiative to allow people to track Cclaims adviser in Preston. previous pensions online, is a pos- and help them understand their investments It’s relatively safe to assume they itive development, but it doesn’t have smartphones and use them answer key questions such as how for roughly the national average much do I need in retirement and of two hours a day. In that time what’s the best way to get there? to performance, drive talent strate- disagrees that the pension sector is they shop on Amazon, read arti- Government tried to address the TIM COOPER gies or improve return on rewards late to adopt fi ntech in all areas. “All cles on The Times website, send a lack of individuals saving for retire- investment will steal a march on the developments in robo-advice few dozen text or WhatsApp mes- ment by introducing auto-enrol- orkplace pensions competitors.” and personal wealth are set up per- sages, scroll through 25 or so photos ment, whereby almost all employ- have been slow to join Despite the slow start, many inno- fectly for workplace pension solu- on Instagram, get PayPal account ers provide a pensions scheme for the fi nancial technol- vative concepts are coming to mar- tions too,” he says. “Fintech compa- updates and check if they have hit employees. A good fi rst step, but ogy revolution, lag- ket. They include online consoli- nies are also well placed to benefi t 10,000 steps on their Fitbit. contribution rates are woefully Wging banking and insurance in areas dators such as PensionBee, fi nance from the shift from defi ned benefi t Common to almost all these activ- inadequate. On top of this, anyone such as data and analytics, accord- apps such as Moneyhub and a host to defi ned contribution. ities is personalisation: shaping below the age of 30 will not get a ing to research. of robo-advisers, online advis- “We agree that pension funds unique experiences with content state pension until they are 70. A lot The 2017/18 Rewards and ers and investments managers are not investing much in the targeted at the individual. Even ads can happen over 40 years. Is it pru- Employee Benefits Association such as Wealth Wizards, Nutmeg technologies that will ultimately shown are based around personal dent for Chris and Lynn to expect (REBA) Technology Survey says and Munnypot. keep them relevant in future. profi les. And like Lynn and Chris, a state pension in later life? I fear that pension schemes have focused These include artificial intelli- most of us are now used to being at many are sleepwalking into retire- on adopting cloud-based platforms gence, blockchain and data-trans- the centre of our own digital uni- ment poverty. in the run-up to auto-enrolment. fer interfaces. But interest in such verse because our data and our apps At least Chris and Lynn save into But schemes say they want to start technologies is increasing and we have put us there. their pension every month, which adopting more advanced technol- expect several large pension funds Contrast that to the world of Chris is a good start. But imagine if, every ogy now, including their top pri- Pension funds are not will eventually buy into them and Lynn’s pensions. Chances time they spend money, an extra ority personalisation, integration through acquisitions.” are they are not lucky enough to little bit is automatically saved with other rewards platforms and investing much in the Mr van Oerle says fi ntech compa- can present opportunities for fi n- be part of a defi ned benefi t (DB) into their pension. Or every time advanced analytics. technologies that will nies have primarily served the back tech, but they can also often act as a scheme, which provides a guar- Chris goes for a run or Lynn goes Three quarters of employers now offi ce to date. But customer-facing brake,” he says. anteed monthly income for life in to the gym, their Fitbit monitors use a cloud-based pensions plat- ultimately keep them solutions are also starting to grow; Mr Henderson agrees that open 19% retirement. their health, communicating with form or off -site hosted software. for example, solutions that show the banking architecture might be an relevant in future of global employers However, they are more likely to their digital pensions platform and Some are now looking to catch up employee their savings online and “eye opener” that leads to a similar have a fi nancial wellness be saving into a defined contri- adjusting asset allocations based on on the latest technology to improve whether they are enough. evolution in pensions. But he says it platform in place bution (DC) scheme, where they longevity projections. income modelling, encourage staff “There has been much innova- will be harder to achieve as pension choose the investments to fund At the heart of it, how we think to increase contributions and guide tion in all these areas, but much arrangements involve multiple asset their retirement, but they proba- about and facilitate savings for them towards retirement. Mark Smith, pensions partner at more still needs to be done,” he classes and funds, not just cash. bly haven’t looked at it recently. retirement needs to change fun- Financial wellbeing platforms, legal fi rm Taylor Wessing, says one says. “The laggards, mostly in tra- “Fintech providers probably hav- And they almost definitely receive damentally. It must be easy, sim- which help employers fi t pensions reason workplace pensions have ditional asset managers, govern- en’t got their heads around that yet,” an annual packet of papers from ple, personalised, intuitive and into a wider programme of benefi ts been slow to adopt fi ntech is com- ments and regulators, need to catch he says. “We’ve also seen banks tak- 61% their pension provider, written in rewarding, more like other con- and fi nancial education, are also set plexity. “There is so much option- up with global trends.” ing over pension providers and try- have a fi nancial incomprehensible, snooze-induc- sumer experiences. The psychol- to grow signifi cantly, according to ality and variation with pensions,” Peter Wilson, senior associate ing to bring their tech across. It will wellness platform in ing language. ogy of savings, the language used the survey. he says. “That has made it harder to in the financial services regula- happen but not overnight.” development or are I bet you they don’t have an app and the art of engagement all need In particular, it highlights the use fi ntech eff ectively. One impor- tory group at Taylor Wessing, says Technology enables a broader look planning one in the calculating how much they need to be part of the process. It is time for need for progress in analytics. tant development will be the indus- that heavy regulation can stifle at an individual’s fi nancial health, next three years live on in retirement; one that shows the pensions industry to catch up “Without good joined-up data, ben- try-wide pensions dashboard [due fintech in pensions, but can also of which a pension is a major compo- how close they are to achieving that with the modern world. It is time to efi ts professionals struggle to meet next year], which should allow support innovation. “For example, nent, hence the growth in fi nancial Reward & Employee Benefi ts Association 2017 goal or gives tips to reach it. get to work. the demands of legislation such as access to all your pension data in the Financial Advice and Markets wellness platforms. He says: “Mercer The disconnect between con- in real-time information report- one place. But the UK is also a bit Review is looking at the employ- also has a solution that allows us to sumer technology and the world of ing, gender pay reporting, auto-en- behind on that; other countries have er’s role in informing employ- look at someone’s fi nancial health average, two thirds of the work- pensions and savings is huge. Just rolment and re-enrolment,” says had dashboards for a while.” ees about the financial solutions and nudge them to take appropriate force we send our personalised vid- think about Amazon Prime; a click REBA. “But those employers able to Jeroen van Oerle, co-manager of available,” he says. “That is an actions. People won’t recognise that eos watch them within 24 hours. Of of a button and Chris and Lynn are create data insights to match reward the Robeco Fintech Equities fund, opportunity for fintech. they have a problem without these those, about half increase their con- done. They don’t think about the “Also the pensions dashboard, apps and tools. tributions. That is a wow moment complex logistics, computer soft- the open banking standard and the “And we also used some smart showing how technology can solve a ware or massive supply chain that second payment services directive tech to create personalised videos; diffi cult problem.” sits behind the delivery. It simply will act together to open fi nancial a diff erent video for each employee Mr Henderson also predicts works around their need. services data. These will enable explaining how much they have that data will transform the work- The frustrating point is that the providers to give a holistic view to contributed, with projected lifestyle place by, for example, helping to technology exists; we are just not employees of their fi nances, includ- and a call to improve contributions. address fi nancial stress and there- applying it to pensions. Yes, the % % ing pensions.” It uses a lot of behavioural science. fore improve productivity. “It can industry has created savings and 75of global employers use a cloud- believe65 technology will increase Brian Henderson, partner and “In the past, companies might be hard to quantify, so any analyt- retirement products, but these are based pensions platform or staff understanding of the value director of consulting at Mercer, have spent £100,000 on a big com- ics in that space, for example the more like components rather than Stuart Breyer licensed software hosted off-site of their employee benefi ts agrees. “Regulatory changes such munications campaign to encour- happiness data from Psychological the consumer-facing solutions we Chief executive as transaction cost disclosure and age saving and got an extra 2 Technologies (PSYT), will be help- see elsewhere. mallowstreet Reward & Employee Benefi ts Association 2017 general data protection regulations per cent engagement from it. On ful,” he says. 14 WORKPLACE PENSIONS RACONTEUR.NET 15

DERISKING When derisking pensio ns is the safest option Companies are How UK schemes are changing their investment strategies increasingly seeking Percentage of trustees and pensions managers or sponsors who made the to take the risk of following changes to defi ned benefi t scheme investments in the past year their pension fund off 0% 10% 20% 30% 40% 50% the balance sheet by Howard George / Getty Images UK equity ...because one Provider of tailor-made doing a derisking deal de-risking solutions Structured products size doesn’t

Insured half of the top 20 Property fit all. pension fund buy-outs TIM COOPER Overseas equity his year is set to be big for With so many retirement the lucrative defi ned bene- income options available Leading UK life insurance fi t pension derisking mar- for employees, we know Fixed-interest gilts ket. The size of pension that a ‘one size fits all’ company Tbuy-in and buy-out deals, which approach to retirement insure schemes against future risks, planning doesn’t work. has grown from £1 billion insured Active asset allocation Increased Therefore, we created assets a year in 2006 to around £12 investment our Retirement Income billion today, according to consult- Reduced Options service to ants Lane Clark & Peacock (LCP). 380,000 investment Corporate bonds implement and manage retirement planning for employees lives insured Meanwhile, insurers report a deal pipeline worth £30 billion. Buying is expensive, but can poten- can recover their assets in the event it won’t make a fi nal buy-out deal and to determine the best course of action based on their Demand for these arrangements is tially save companies millions top- of an insurer default. look less attractive in future. personal circumstances. increasing as more employers look to ping up funding levels in the long Charlie Finch, a partner at LCP, “You might be better off retaining Illiquids £1.5bn remove the risk of future pension lia- run. It usually also has advantages says buy-ins are the biggest growth control of those assets and investing In order to protect employees from poor decisions, bilities from their balance sheets. The for scheme members. All deals come area as going straight to full buy-out them to generate a slightly higher our complete service ensures employees/members receive of benefit payments in 2017 biggest risk is stock market volatility, with the safeguards of the UK insur- is more expensive and beyond the return. This could enable you to set- the help they need to understand all of their options as large swings in the value of pension ance sector regime, including the means of most schemes. “Also buy- tle more of the liabilities with a buy- Index-linked gilts at-retirement. scheme investments can play havoc strong capital reserves required by ing out in chunks can get you better out sooner. The challenge is decid- with companies’ fi nances, some- regulators, and the back-up of the pricing by targeting a set of liabil- ing where in that risk spectrum you The service consists of: £24bn times even causing or contributing Financial Services Compensation ities,” he says. “For example, some want to be.” to their collapse. Another is longevity Scheme if the insurer still fails. insurers might prefer younger mem- Mr May adds: “Also a buy-in leaves of assets invested Alternatives Financial education and guidance: provided in a number as people living longer than expected These typically compare favourably bers, older members or those with more risk with the employer as the of formats to ensure retirement income options and tax can cost companies millions more in with the safeguards members get larger pensions, so you could sell asset is still on its balance sheet. So issues are understood meeting their pension promises. from staying in an employer scheme. them to diff erent insurers.” it’s questionable whether the com- LCP says buy-out aff ordability has Insurance contracts will also typ- Jeremy May, head of pensions at pany’s investors will give you much Liability-driven investments risen to its highest level since the ically include protections for mem- PwC, says more innovative buy-in credit for doing that.” Regulated advice: as every situation is different, this is 2008 fi nancial crisis, due to three bers, for example, if the insurer is solutions are also becoming popu- Most UK schemes are a long way designed to ensure everyone has a personalised plan factors. Increasing competition not able to pay the pensions on time lar, for example those that unbundle from being able to make a full among insurers has brought prices or if unforeseen data issues arise. and customise the benefi ts without buy-out; the current £12 billion Aon Hewitt 2017 Implementation of options: this allows a holistic solution down and promoted innovation. A Some large deals also feature collat- all the traditional costs. of insurance transactions a year to be implemented and managed throughout retirement deceleration in longevity rates has eral structures to ensure schemes “There is a whole suite of innova- is a tiny fraction of the £2 trillion such as large corporate transactions a more automated payment system. meant insurers can charge compa- tion,” he says. “You can mix some of of liabilities in defined benefit where tidying the pension scheme So it requires much work to tidy Ongoing support: continuous guidance, advice, nies less to take on the risk of peo- the parts of a buy-in, such as longev- schemes. Most schemes need to makes sense,” says Mr May. “For your data, administration and other and management of income throughout retirement ple living longer. Thirdly, improving ity protection, infl ation and interest get near to a state of full funding example, Cable & Wireless derisked issues, such as equality of benefi ts stock markets have boosted scheme rate protection, and specialist asset before they can afford a buy-out. its pension scheme in 2008 prior between members.” This service is available now to pension schemes, trustees funding positions – how much management, to suit your scheme’s But if they achieve this, they can to a demerger. ICI has done a series The £3-billion Merchant Navy and employers, so whatever retirement income plan is needed money they have compared to their needs. Also, there are cheaper invest in low-risk assets that match of derisking deals following takeo- Offi cers Pension Fund (MNOPF) by employees and scheme members, they can access it liabilities – thus reducing the risk to buy-in solutions with more limited their liabilities and there is argua- ver by Dutch fi rm Akzo Nobel. Also has been a derisking pioneer. The through our fully integrated service. insurers of taking them on. % levels of cover and specialist fi rms bly then less need to insure. The Philips completed a buy-out after scheme has made several buy-ins In a buy-out, a pension scheme pays that take over running the scheme cheaper option might be to keep splitting the business into two.” since 2009, plus one buy-out and an increase10 in average buy-out an insurer to take responsibility for funding levels for FTSE 100 UK to prepare it for buy-out.” the assets until the scheme is close Independent trustee George Taylor innovative hedge of £1.5 billion of paying the pensions of the scheme’s The biggest obstacle is cost, so to winding up, as administration has worked at the coal face of derisk- longevity risk in 2015. pension plans since August 2016 To find out more about how we can help your employees insured members. A buy-in is similar schemes should beware any hard sell gets proportionately more expen- ing activities at several schemes. “In Andy Waring, chief executive make the right retirement income decisions, please call except the insurer makes payments by insurers and advisers. They should sive at that point. all cases, it started by moving stead- at MNOPF, says: “A signifi cant 0800 234 6880, email [email protected] or visit to the scheme, which then pays the also take care with any partial deals “Deals done earlier than that are ily towards a lower-risk investment improvement in funding enabled www.wealthatwork.co.uk members. It is usually a step towards where the insurer gets the cheaper often driven by additional factors, policy,” he says. “The downside of these moves, aided by the appoint- full buy-out and winding down of liabilities, such as pensioners with that is lower returns. But the regu- ment of consultant Willis Towers www.rothesaylife.com the scheme. Another derisking tool defi ned benefi ts, leaving the scheme lator requires insurers to hold low- Watson as delegated chief invest- is a longevity swap, which transfers in with the more expensive ones such er-risk assets, so you have to do that ment offi cer. This led to a plan to the risk of pensioners living longer 1 5 as deferred pensioners. The latter to make it insurable.” improve funding, which grew from than expected to an investment bank cost more to derisk because the ben- Mr Taylor says two signifi cant 69 per cent in 2012 to 88 per cent in or insurer. efi ts are less well known due to the Buy-ins are the biggest obstacles to a buy-out are often 2017 and is on target to achieve over Schemes also do much to derisk timescales involved and unknown issues related to administration or 100 per cent by 2025. Smarter themselves through, for example, future variables. growth area as going data. “Pension schemes are com- “The success of this strategy, at careful matching of their invest- FTSE 100 companies had pension Stephen Dicker, pensions strategy plex and often have unresolved a time when many other schemes’ plans over 80 per cent funded straight to full buy-out thinking to ments to liabilities and adjusting leader at PwC, says: “A partial buy-in issues in their data,” he says. “The funding levels deteriorated, enabled relative to the full buy-out cost WEALTH at work and my wealth are trading names of Wealth at Work Limited benefi t levels where possible. Doing or buy-out may still be the best is more expensive and insurer won’t take them on with the fund to further secure its mem- which is authorised and regulated by the Financial Conduct Authority and is a in 2017, up from one in eight the member of the Wealth at Work group of companies. Registered in England and secure the this will also make them more option as a step towards full buy- those issues because trustees can bers’ benefi ts and saved over £300 previous year beyond the means of Wales No. 05225819. Registered Office: 5 Temple Square, Temple Street, Liverpool attractive to an insurer should they out. But be sure that, if you are left interpret them and exercise discre- million in defi cit contributions for L2 5RH. Telephone calls may be recorded and monitored for operational and training purposes. future choose to a buy-out later. Lane Clark & Peacock 2018 with the more expensive liabilities, most schemes tion, but insurers cannot. They have its employers.”