Just a week after marking national Pension Awareness Day in the UK it has been revealed that a third of employers will not review their existing pension service following the reforms introduced in April, according to the latest research from Close Brothers Asset Management (CBAM).
Despite a wave of new flexibilities meaning people now have greater choice in how they use their pension pot, 32 percent of employers said they would not be reviewing or altering their existing defined contribution (DC) service to ensure their staff have access the best solutions.
On top of this, over a third (34%) said they did not even know whether they needed to review their plan, according to CBAM’s latest ‘Business Barometer’ survey, which questioned nearly 700 employers. This shows that despite significant publicity, there is still some misunderstanding around the extent of how the reforms will affect existing offerings in the workplace.
One in eight (13%) said they would review the default or lifestyle fund they have in place for staff, while the same amount have said they know they need to amend their pension schemes to enable cash withdrawal and flexi drawdown. However, this still leaves a significant amount who are not actively making amends or have considered a plan of action.
For many employees, default funds – the automatically selected fund for any member joining a pension scheme at work – have traditionally applied a lifestyle strategy to the investment of these funds in the years ahead of retirement to derisk these investments to prepare them to fully fund an annuity purchase. However, with annuities no longer the only option, these life styling strategies may be entirely inappropriate for members who intend to have some element of drawdown/ flexi drawdown investments in retirement.
Indicating it may be a case of businesses believing they do not have the resources in place to review their schemes, it is the smaller firms that said they would not be reviewing their DC service at all. Two fifths (42%) of the smallest businesses (with a turnover of under £5,000) said they would not be looking at this, compared to 26 percent of the largest employers (with a turnover of over £10 million).
Jeanette Makings, head of financial education services at Close Brothers, said: “What may have worked for employees in the past is simply not going to stand up against the new age of pension planning. As there are new options for savers to take, so should there be updated choices within the workplace scheme they have been paying into for many years.
“Default funds may no longer provide the best investment strategy for those who don’t intend to use their pension to fully fund an annuity, so employers need to take steps to review what they have in place and ensure they are adapting accordingly. Kick-starting communication around this, by speaking to staff to help them understand where and how their pension is invested and whether that continues to be the most suitable strategy for then is the first step. Doing this, and reviewing existing funds, is not something that has to eat up resources, and there is always help and advice available. In the long-term, both the businesses and their staff will benefit.”