Current, former and retired employees could be in for a big shock when companies are forced to reveal the extent of their pension deficits towards the end of September, according to pensions experts.
Under the Pensions Act 2006, all trustees of defined benefit (or final salary) pension schemes with more than 100 members must issue their first annual Summary Funding Statement (SFS) by 22 September 2006.
Statements should include clear information on the exact funding status of the pension scheme and whether there is a shortfall.
These revealing documents are expected to stir up big communications challenges and could raise more questions than they will answer, according to the Aon Consulting HR consultancy.
June Grant, head of benefits at Aon, said although the pension scheme actuarial valuation has been available to members for the past 20 years, very few members ask to see this complex document and be in a position to fully understand its implications.
“The numbers, particularly those showing the position on wind-up, can make alarming first reading for someone unfamiliar with the financials of a pension scheme and the way the regulations work,” she said. “The likely knee-jerk reaction is that people will panic and think they won’t receive their full pension entitlement – if at all.”
Rather than being a burden, Grant said employers could use the opportunity to show staff how hard they are working to reduce deficits by implementing robust funding plans.
Aon offers the following tips for companies and trustees to ensure the SFS content is understood:
Do not just rely on the pension regulator’s specimen wording.
Tailor communications to different groups within the pension scheme and spend time creating clear answers to the inevitable questions on funding from the different groups within the pension scheme.
Use language individuals will understand and cut out technical pensions jargon.