May 6, 2011

Time to take pensions seriously

Filed under: Blog — Grove @ 3:32 pm

As discussed in Deborah Moons blog this month (see Managing without the Default Retirement Age), the removal of the Default Retirement Age (DRA) is a call to action for employers. Workers now have the choice of continuing to work on, well beyond what used to be regarded as ‘Normal Retirement Age’ and personnel and pensions policy need to be reviewed as a consequence.

As if by magic, duties will soon fall upon employers to automatically enrol all workers into a workplace pension scheme.

These two strands are inextricably linked.

According to a study of 5,000 people covered by The Daily Telegraph in April, 38 per cent of people who are due to retire this year have already cancelled their plans and will continue working. More than a fifth of this group blamed insufficient funds. They had hoped to stop working at 62 years old, but now expect to be 68 years old before they can finally take up their pension. That’s just a small taster, one suspects, of what might happen once the average worker knows that they don’t have to retire anymore.

It seems to be frowned upon to engage in a public debate that might be labelled ‘ageist’ but as an employer, you have to take a view. Is an ageing workforce what you really want? If not, how do you regularly introduce young skills and talent into the workforce if older workers are not retiring? That’s a national concern, surely? And are workers who have to be there as effective as workers who want to be?

Sorting the older workers’ wood from the older workers’ trees will be much more straightforward if you take steps to ensure that the prospect of an impoverished retirement is not one of the driving issues. Both you and your older workers will be able to have much more work focussed discussions without fear in the room.

According to the Pensions Policy Institute (PPI) and the Association of Consulting Actuaries (ACA), we need to be targetting retirement savings of 15% of pay during working lifetimes to pay for a reasonable standard of life in old age. Auto- enrolment requires around half that. It will not solve the problem.

My view won’t surprise you. I make my living from company pensions. But I’ll express it anyway because I believe in it.

The objective for all UK employers should be to ensure that quality pension schemes cover all workers with a 15% contribution for each year of working life.

If that sounds frightening, it needn’t. Even members’ pension contributions are ultimately paid by employers it you think about it. It just takes an aim and a plan.

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