With the government introducing pension automatic enrolment, all employers must offer a workplace pension scheme and automatically enrol eligible workers in it.
The 2014 budget has also introduced more choices from April 2015, which means that employers, including co-operatives face the challenge of communication and education colleagues about these changes. The new legislation has also determined a move from defined benefit to defined contributions schemes.
Defined benefit pension schemes are salary-related pensions. Employees contributing to such schemes receive a certain amount each year when they retire. The amount they get depends on their salary and how long they have worked for the employer. In the case of defined contribution pension schemes, the money is invested by a pension provider chosen by the employer. Thus the amount received by employees when they retire depends not only on how much has been paid in and how long they have been paying in, but also on how well the investment has done. As a result, it is harder for employees to understand what they will get when they retire.
“They have to think of what they need to invest it, they have an increased responsibility for their quality of living in retirement,” explained Helen Whitworth, technical services controller at the Co-operative Group. As a big employer, the Co-operative Group was one of the first to adopt automatic enrolment in 2012. Speaking at the National Retail Consumer conference in Stratford, Ms Whitworth advised delegates on how to communicate pensions to their employees.
At the Group, information is being passed on to people through question and answers, annual reports and websites. More than 30,000 of the Co-operative’s employees are now under the defined contribution scheme. The Group has also launched an area where employees can decide whether they want to change their retirement age. However, the information tends not to be accessed by the majority of employees.
The key aspects that people should understand are, according to Ms Whitworth: what’s their target replacement income, what they already have including state benefits, what they still need to build up, their investment choices and choices at retirement.
“It’s right that people have more choice, it comes back to education, as a co-op we should help people help themselves,” she added. She explained that flexible retirement was possible within the UK pension system. “You can draw your pension and can continue to work, again the case of people being aware of what their options are.”