There has been a seismic shift in the pensions landscape since the launch of automatic enrolment (AE) and there are now 15 times as many retirement savers now members of defined contribution pension schemes compared with the historically more typical sort of defined benefit schemes.
The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have noted that this shift has also seen savers carrying more of the risk in planning for their retirement and taking more decisions than was the experience of past generations. Despite the shift to increased saving for pensions and savers having more autonomy in decision-making, consumers often describe it as a ‘minefield’. Even those who describe themselves as confident in other aspects of their financial lives say that they struggle to understand how pensions work.
This is according to the Work and Pensions Committee, which heard evidence in relation to its inquiry on protecting pension savers on 16 June 2021. The written evidence submitted explores how an inappropriate choice can have an irreversible impact on a person's quality of life in retirement.
To address this, the FCA and TPR have been focusing on ways to assist consumers in retirement saving. On 18 May 2021, they launched a joint call for input on how the consumer pensions journey could be improved.
Aiming to understand more about how savers make pension decisions at key points throughout their working lives, the FCA and TPR intend to prompt a ‘broad discussion’ within the industry to help gain insights that will shape future targeted regulatory interventions, with views sought on how savers can be better supported to achieve improved outcomes.
The message is clear: pensions is a complex area to navigate, leaving savers vulnerable to making mistakes. While pensions dashboards should help, with all savers' pensions information on one easily accessible platform, this is not expected until the autumn of 2023. So where will employees go to seek assistance and will they be asking employers for more information on pensions?
The most likely area where employees may ask employers for help is, of course, with decisions on pensions related to their employment. This could cover decisions over how much to pay into their workplace pension and how to invest it, but also decisions over when to retire and in what form to take their pension savings on retirement.
Employers can offer help, but there are limitations. For example, employers must not issue material promoting a particular financial product or they risk making a ‘financial promotion’. Employers must not give financial advice to their employees. Only someone authorised by the FCA or an approved individual or firm can do this.
However, employers are able to provide employees with access to independent financial advice and may pay for that advice. We are noticing that more of our clients are following this trend. There are also some exemptions under FCA rules which may allow an employer to promote a pension scheme offered in the workplace, including giving information on the merits of participating in the employer's occupational pension scheme, providing information on that occupational pension scheme and issuing factual information on any group personal pension scheme.
Rather than answering specific questions on, say, funds in which to invest, a way for employers to assist employees in relation to pensions could be to give them more general information and support to help them make their own financial decisions.
Employers could choose to alert employees to available resources for information and guidance about financial matters, such as the services provided by the Money and Pensions Service including The Pensions Advisory Service (TPAS), the Money Advice Service and Pension Wise (PW). Education of pension savers through TPAS, PW and similar will be key.
Increased understanding through education would encourage employee/member engagement and challenge the perception of pensions as a minefield too daunting to attempt to navigate. Is it time for employers to play their part?
Sufi Rahimi is a trainee solicitor at Dentons