Edel O’Leary explains why pension planning is a priority and why delaying matters won’t help.
‘Procrastination is the thief of time’ – a proverb that resonates with people who find themselves delaying tasks, duties or obligations that they will have to tackle at some point.
Pension schemes and planning to save for retirement often gets pushed into the procrastination bracket, and not just by individuals. Even employers with the best of intentions to set up a viable pension scheme for employees can get bogged down by day-to-day business dealings, leaving a workplace pension at the end of a long to-do list.
Ger Deering, the Pensions Ombudsman, called out the problem recently when he said that many workers were leaving it too late to work out their pension entitlements thus short changing their pensions as they neared retirement.
In a report published by The Examiner, Mr Deering said: “In our experience many current scheme members are not familiar enough with the terms applying under their pension scheme or the basis of computing benefits thereafter”.
“With longer life expectancies, men and women currently aged 65 could expect to live to 86 and 88 years respectively. With an expectation of having 20-plus years in retirement there is a need to have sufficient benefits in place to provide an adequate income in retirement.”
It’s a powerful statement from the Ombudsman and one that should be heeded by employers and trustees who can help individuals realise the value and indeed, necessity of contributing to a pension that should make their retirement more comfortable.
There are a myriad of reasons why employees fail to grasp the importance of pension planning. For a start, there are real life matters to contend with. You want to save money for that retirement pot but aren’t there school books and uniforms to be bought? That family holiday still had to be paid for and there’s car insurance, a monthly mortgage, bills and other overheads that take precedence over pension planning month on month. And let’s not forget the overhang of a recession since 2008 which put a severe squeeze on household savings.
On top of this, pensions themselves can prove utterly confusing for many. Mr Deering said his office finds “many [pension scheme] members pay scant attention to the benefit statements and reports that they receive or find them confusing and indecipherable”.
What should we do to address the problem? Here at Acuvest, where we take an independent and holistic approach to pension advice, we believe that as well as providing an excellent workplace pension scheme, communication is key when it comes to pensions. Employers and trustees need to remain steadfast in establishing pension engagement with members and reiterate the importance of keeping tabs on your entitlements, contributions and saving potential.
Having an independent pension adviser can help; having someone whose responsibility it is to take regular status checks on how a pension scheme is performing. An adviser will cast an expert eye on pensions investment strategy and performance, rate the performance of the fund managers, support trustees in governance issues, monitor member outcomes, ensure that the administration platform is as good as it can be, and make certain that the scheme is delivering value-for-money for its members and the employer that is providing it. But all of this is may go unnoticed and under-utilised by employees if the right communications strategy is not put in place.
Get members involved. Ensure they are aware of their pension options and understand what this means and make the process for joining the scheme as simple as possible. It’s all very well producing annual statements concerning contributions, fund data and performance ratings if the member is still scratching their head wondering what all of this means for them and their future retirement savings.
Here’s a helpful acronym to keep workplace pensions in check and members vigilant of the importance of saving: PLAN
P: Prepare regular pension updates for members
L: Leave time aside in your work schedule for pension discussions
A: Ask for feedback from members – what are their questions?
N: Never assume that a lack of interaction from members means they fully understand.
If you introduce these four simple steps and seek out the right independent advice, pension understanding in the workplace can be easily sustained and work towards a more transparent pensions landscape as a whole.
Edel O’Leary is Acuvest’s Head of Communications and Marketing. Email Edel at email@example.com or follow on Twitter @o_edel. Acuvest is an independent pensions and advisory management business taking care of the futures of over 40,000 of our clients’ employees. For more market analysis and expertise follow Acuvest’s daily updates on Twitter @AcuvestIreland and LinkedIn and our fortnightly blogs.