Dedication deserves you a gold plated pension

Dedication deserves you a gold plated pension: that was Unison’s message in today’s Metro article on why we will have up to 3 million workers take part in the largest strike Britain has ever seen on Wednesday this week. Dedication by those looking after our children (teachers), our elders (nurses), our planet (recycling collection). Don’t get me wrong, I do appreciate the education I had, the help delivering my two children and having my bins emptied every week. But why are those working in the private sector or for a charity, who could equally be as dedicated to helping others, not be as deserving as those who have managed to find and sustain work in the public sector.

The comparisons used in the Metro article to illustrate the existing public sector schemes are of a hospital porter and a nurse. I have not checked the maths but they are quoted as follows:

“A hospital porter earning £15,000 on retirement after a full career could receive £6,600 a year with a lump sum of £19,700. To get that from a private sector personal pension you would need to put away at least £200 per month.“   This means that together with the new proposed flat rate state pension of £7,280 the hospital porter could retire on an income which is 92.5% of his (or her) earnings at retirement. Plus a lump sum equal to more than a year’s pay.

The second example: “A nurse earning £30,000 a year on retirement after a full career could receive £13,100 a year with a lump sum of £39,400. To get that from a private sector personal pension you would need to put away at least £400 per month.” Again adding in the new proposed state pension the nurse could be retiring on 2/3rds of her (or his) earnings at retirement. Plus of course the lump sum on top.

No statement was made as to what investment or annuity assumptions have been made for the private sector equivalent!

Even with the changes proposed by the government; which will see a career average rather than a final salary scheme being introduced from 2015, with retirement being increased from 60 to 65 for those not already within 10 years of retirement, and with employees earning more than £15,000 being asked to pay on average 3.2% more into their schemes, the public sector pensions will still be pensions that “you simply cannot get anywhere else” as Ros Altman states in the article.

Perhaps a little more work on engagement by the Government so those in the public sector realise what a generous benefit their employer (and the tax payer) is providing to them may avoid further strike action and disruption to those working in the private sector whose working arrangements need to change as a result.

Pensions strategy is now moving to the HR agenda.

Last week I facilitated a discussion at an HR Directors event on how employee benefits can be used as a tool to enhance recruitment, retention and the productivity of your workforce. The general consensus amongst the HR professionals who attended was that it is the “non-financial” benefits of working for an employer such as flexible working and on-site childcare which are influencing retention rather than the pension scheme offered.

This is further supported by some recent PWC research interviewing employees in the UK

where “72% of employees said a closure or reduction in their pension provision would not impact a decision whether or not to stay” and “only 12% of employees said they consider the generosity of an employer's pension scheme when deciding to accept a job offer”. The exception to this seems to be those working in the public sector who are striking on November 30^th!

So what is the role of the employer?

Pensions strategy is now moving to the HR agenda. Agreed that finance will continue to play a vital role in the DB environment, but with many DB schemes now closing to future accrual, de-risking on both the liability and asset side now being pulled under control, HR need to be taking a more pro-active role. HR should formulate their own point of view on whether pensions have a role to play in their Employee Value Proposition or whether they allow Finance to continue to drive the agenda from a purely cost perspective.

Granted pensions will not form part of HR's “pay for performance” or talent strategies, but they do have a role to play in supporting your company culture and the relationship your employees have with the company. The cost of providing pension schemes, even in the new DC environment is significant so make sure you are getting a good ROI by ensuring your employees are better engaged, educated and informed about the need to save.