UK 2012 regulations may restrict employer innovation
UK - Employers want a wider range of pension and savings products that meet the changing priorities and immediate needs of their employees, but the upcoming 2012 regulations may be restricting innovation, according to research from BlackRock.
Findings from a joint report by BlackRock and the Chartered Institute of Personnel and Development (CIPD) on the "Business Case for Pensions", showed that for the majority of small and medium sized firms pensions are seen as a compliance point and not part of a rewards package.
In contrast most larger firms still have the "defined benefit (DB) mindset" that the pension scheme is used to attract and retain staff, despite shifting towards defined contribution (DC) provision, which is more portable.
But Blackrock noted that employee engagement is low in both DB and DC schemes and across all sizes of employer, with just 55% belonging to a company pension scheme. To combat this the survey of 61 employers, including firms such as Shell and E.ON UK, and 840 employees, highlighted a need for better tools to stimulate interest, improved communications and innovation of savings products.
In particular Steve Rumbles, head of UK DC pensions at BlackRock, noted that the introduction of a system similar to that of US 401(k) plans - where members can take out a loan from their pension fund under certain circumstances and pay it back with interest - could overcome the main fear of employees of locking away their money for 30 years.
He said: "You might think in 2008 most people took advantage of the loan system in the US. But only 1.2% of members actually used it. It is the piece of mind it gives you, it is not necessarily used. People want choice, although 95% of the time they probably won't use it. It is just knowing that option is there."
However while he highlighted that employers want a wider range of products to help meet employees changing needs, he warned "at the moment the 2012 regulations mean that offering other savings vehicles could be seen as encouraging people to opt-out from pension saving".
Charles Cotton, chief reward adviser at CIPD, added: "The flexible approach is being stymied, because if an employer is offering other products they can get done for helping people opt-out. We should encourage people to start saving first and then we can talk about pensions."
The report also highlighted the possibility that the introduction of auto-enrolment in 2012, and the minimum contribution requirement of 8% of qualifying earnings could lead to a "follow the herd mentality" particularly among smaller employers.
Rumbles said: "We deal with predominately larger companies and in talking to those with both DB and DC schemes, there is little indication of them levelling down [to the 8% minimum]. But that's because of their recognition of pensions as a retention tool. The herd mentality is likely to be at the smaller end, who will think 8% will be it, and will stay at that level forever unless the government changes it."
"Employers, providers and government must work together to ensure that generations to come understand taht saving for retirment is ot a desirable, but an essential," he added.
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