Employees are understandably concerned about the safety of their retirement savings when they read about insolvencies or the collapse of big company pension funds. This is why it’s crucial to communicate the robust protections that exist to preserve them, according to Katherine Easter.
In a year where the news agenda has been relentless, high-profile company insolvencies – and their impact on associated pension schemes – have still managed to grab the headlines.
Against this backdrop of economic uncertainty, it’s reasonable to conclude that many defined benefit (DB) schemes members are concerned about the safety of their personal finances and pensions.
But what perhaps you, and many of your employees might not know about, are the robust pension protections that exist in the UK to safeguard the financial futures of millions of UK pension savers in a worst-case scenario.
If a company has an associated DB pension scheme, members of the scheme can be reassured that if the worst were to happen and their employer failed, their pensions would be in the safe hands of the Pension Protection Fund (PPF).
What protections are in place?
The PPF provides pension protection for members of private sector DB pensions across the UK in the event of employer insolvency.
This means any employees who currently pay into or have previously paid into their employer’s associated UK DB pension scheme (excluding public sector schemes) will be protected if their employer fails. The days of people losing the pensions they’d saved their whole lives for are thankfully behind us.
Our protection follows employees too – regardless of the health of the organisation, and how long an employee stays with the business before retiring or moving to a new job.
This means that PPF protection is essentially an “invisible” added employee benefit for staff who are DB pension savers. However, awareness of this important benefit is often low.
It is critical for employers to communicate these protections to relevant employees, particularly in these uncertain times. As HR and talent professionals, we have a critical role in raising awareness of this employee benefit.
By equipping your teams with information about pension protection and the PPF, you can ease employees’ nerves, and stop people making rushed or hasty decisions that might not be in their best interests.
However, understandably there are several communication challenges that can act as barriers.
The pension “taboo”
First, pensions are complicated. Many people don’t understand how they work (not least the different ways that DB and DC schemes work), which can often be a barrier to meaningful engagement with the topic.
It’s always easier to talk about more tangible workplace benefits – whether that’s gym discounts, or healthcare benefits – as opposed to those like pensions which can seem abstract. But staff need to understand the protections in place before anything goes wrong. A bit like health insurance – a benefit they will hopefully never need to use.
HR professionals need not worry about becoming pensions gurus – after all, it’s not your responsibility to advise employees on how pensions work. We want to help ensure HR teams are well equipped with information rather than answers, and always recommend referring people to the FCA guidance and the importance of taking professional financial advice.
It might also make sense to engage with your pension’s Chair of Trustees, who can discuss more ways to communicate the PPF’s protections to your people.
DB vs DC challenges
Many companies will have some team members in DB schemes, and others in defined contribution (DC) schemes. Having employees in different schemes can make it challenging to implement a company-wide approach and lead to confusion. One-size-fits-all won’t work.
The most common feedback we hear from scheme members when their employer becomes insolvent is that they didn’t know anything about the protection that exists.”
Helping DB scheme members become aware and appreciative of the enhanced benefits they receive – while not alienating any DC scheme members you employ – can be a delicate balancing act.
It is therefore worthwhile communicating the protections and benefits that DC members receive too, including protection from the Financial Services Compensation Scheme (FSCS).
It’s worth considering communicating pension protections as a benefit that all employees receive as part of your wider financial awareness strategy. The most common feedback we hear from scheme members when their employer becomes insolvent is that they didn’t know anything about the protection that exists and better communication, before crisis occurs, would have given them considerable peace of mind.
Connecting with former employees
Not only are there lots of employees on different schemes within any one company, there are also former employees. The PPF’s protection follows an employee after they leave – as long as they remain a member of the scheme. This poses a further challenge once an employee leaves, as the communications responsibility sits with the pension administrators not the employer, or HR team.
With many people having numerous pensions in a variety of different schemes as they move between roles (often a combination of both DB and DC), these regular communications touchpoints can be lost.
Eventually the government’s pension schemes dashboard project, introduced in the new Pension Schemes Act, will help people keep track but until then there’s perhaps opportunity to add more communication into leaver letters as a result, reminding employees that protection will follow them into their next role.
Where does HR fit in?
I believe our profession needs to make a concerted effort to help simplify how investing in your pension today results in better outcomes for the future.
We need your help in communicating the added, but invisible PPF protections that sponsoring employers offer DB scheme members.
Your help to empower them with the right information to make informed choices with regards to their pensions and financial futures, will serve them well in a worst-case scenario.
Whether that’s through more bespoke communications to different scheme members, improved financial awareness training and/or strategies, or even via leavers letters – there are several ways to potentially combat the challenges that currently exist.
HR and talent teams have a crucial role to play, and when organisations proactively engage with their employees on this issue it can result in a well-informed and happy workforce.
Our website and social media platforms are one place to get information and we’d love to hear what more we can do to help you raise awareness of this important protection that everyone hopes they’ll never need, but your employees will be eternally grateful for if they ever do.