While the outlook for defined contribution pension plans looks set to improve in 2010 as markets start to rise again, now is not the time for complacency, an investment services company has warned.
As a result, HR professionals need to review the schemes that are currently being provided to staff based on lessons learned during the downturn in order to help them meet their retirement objectives and mitigate the impact of any future financial crises.
Tony Pugh, head of defined contribution (DC) services for Mercer in the UK, said: “Like never before, DC plans are at the heart of the debate around how financially well prepared employees are for retirement.”
As a result, being able to effectively manage such plans will have a “huge impact on the overall success of their members in achieving retirement savings goals”.
Therefore, he recommends that HR professionals take various steps to ensure that the DC plans offered by their organisations are in order. First, they should encourage personnel to review the schemes of which they are a member in order to ensure that they are meeting their future requirements.
Employees should also be provided with enough information to ensure that they can make informed choices. The aim here is to reduce workforce management issues a number of years down the line.
Because DC plans require higher staff contributions than the more traditional but now less common defined benefit schemes, it is necessary to evaluate whether they still have any value as a tool for employee recruitment and retention when compared with the benefits offered by rivals.
Given the proposed tax increases to pension accrual announced in the Government’s pre-Budget report, which may make saving via pensions arrangement more or less attractive depending on salary, it may also be helpful to introduce more tax-efficient savings options to provide better value for employer spend.
A review of both governance practices and the long-term prospects for pension providers is likewise a must, the first due to pronouncements from the Pensions Regulator last year indicating a greater focus on this area over the coming months and the second due to continuing industry consolidation.
Finally, because by 2012 many large employers will be required to conform to the initial phase of compliance laid out in the Pensions Act 2008 – despite an extension of the full compliance deadline – it will be necessary to identify those staff who will need auto-enrolling for Personal Accounts and to budget for related increases in contribution costs.
This means that existing schemes will need to be reviewed to ensure that they can be used as auto-enrolment plans and if not, timescales will need to be agreed upon to make the required alterations
