Pensions Environment: Pensioner Welfare – Whose problem?

Pensions Environment: Pensioner Welfare – Whose problem?

The pensions environment has experienced an unprecedented period of change over recent years. The introduction of auto-enrolment drawing many individuals into a pension scheme for the first time.

The recently enacted Pension Bill brings other changes. The introduction of the new flat rate state pension and the abolition of contracting out. Just when we all felt that things had begun to clarify and settle down, the Chancellor introduced a raft of changes which has taken everybody by surprise.

pensions enviroment 2

Change in the pensions enviroment

The Treasury are consulting on various matters and one of the key issues is whether transfers from Defined Benefit (DB) to Defined Contribution (DC) schemes should be allowed. The ability for individuals to take the whole of the pension pot in cash will present a number of challenges, particularly as everyone will be entitled to receive ‘free guidance’ as part of the process. Who will meet the cost of providing this guidance is yet to be decided and I expect HR and Payroll teams will be facing a number of challenges dealing with this new pensions environment.

Communications Retirement is no longer a fixed point in time, state retirement age merely being the point at which you are entitled to claim your state pension. It is likely that many individuals will choose to continue to work in order to maintain their standard of living, which will undoubtedly present problems in managing succession planning and make effective communications with employees even more critical.

Pensions environment looking to go digital

Pensions environment looking to go digital


New legislation will allow schemes to move to online portals and digital information. Scheme members could be transferred away from paper based communications to the online system. While there is no getting away from the digital revolution, one of the consequences of moving members to an online system is that those who would prefer to still receive hard copy communications will have to actively opt back into paper- based communications. This is not an ideal situation, especially when a proportion of scheme members will not be comfortable with technology.

The National Federation of Occupational Pensioners (NFOP) is a founding Partner of the Keep Me Posted (KMP) campaign ( calling for organisations to offer consumers the right to choose how they receive information. If that choice is for paper correspondence then it is the view of the campaign that the individual should not be charged for making that choice. The availability of online information to customers should not be conditional upon the individual giving up their access to paper correspondence. You may ask – why is this so important within the pension industry? KMP’s research shows that 80% of over 65 year olds prefer to receive communications in paper format and 56% are more likely to read these rather than online statements. Even those who are IT literate are often reluctant to use online systems for financial transactions or billing information. Individuals are also strongly advised not to record or share online login or access details. Retaining up to date information for both the individual and scheme or annuity provider can become difficult when a person is no longer able to manage their own affairs. This can be exacerbated when the only form of communication is online and no-one else knows how to access it. Carers and family members may be unaware of the contact points for vital pieces of information and as a result fail to keep organisations up to date with the current situation.

From my experience, as pensioners age they become more cautious and fearful of change and uncertainty.nAs a result, members of NFOP make contact with the Headquarters team when they receive unexpected communication from their Scheme. Their concern is usually about the safety of their pensions, often as a result of the way in which the information is presented and the inclusion of “statutory statements”. For example, the explanation of what would happen in the event of the scheme sponsor going into liquidation.

The key is for the individual to be able to easily identify and understand the important message, without becoming unnecessarily concerned with the content of the statutory information.

The effects of living longer, the continued increase in longevity should be praised, but in itself creates issues for individuals and schemes alike. Many ailments that used to result in death are now treatable but in turn create a long term dependency requiring care and support. Politicians and the press have been focusing on the ‘baby boomer generation that consists of a high percentage of significantly better off pensioners, as a result of their membership of DB pension schemes. The disastrous effect on annuity rates has meant that this generation who have contributed to DC pensions have found that their expected retirement income falls short of their hopes.

Politicians continue to ignore the significant group of ageing pensioners who may well have occupational pensions but are barely making ends meet. Having become eligible for their pension many years ago, based upon what now would be deemed a pittance of a final salary, this group of pensioners have seen the value of their pensions, in real terms, eroded over the years. Not all these pensioners benefit from an uprating clause in their pension. Of those that do some are lucky enough to have RPI linked, while others have seen their index changed to CPI. All of them have seen ‘pensioner inflation’ outstrip whatever uprating index has been applied.

The financial crisis and the subsequent austerity measures have impacted on pensioners and will continue to do so. So who should be responsible for the welfare of these pensioners? The more paternalistic organisations may have extended support to employees and their partners into their retirement, the changes in the economic climate and greater career mobility make this less and less practical, yet they are some of the most vulnerable in society. The Trustees, Scheme sponsors and annuity providers are not in a position to help but may be the first people a distressed pensioner will turn to. Pensioners may be inclined to turn to their former employer for help, support or guidance if they feel abandoned.

Many pensioners are asset rich but cash poor

Many pensioners are asset rich but cash poor

A significant problem exists for asset-rich cash-poor pensioners as evidenced in a recent request submitted to The NFOP Welfare Fund. A widow, who had bought her council flat, received a bill for £6,367.19 in respect of her share of the cost of renovating the lifts in the building. She had no way of meeting this demand either immediately, or by the proposed staged payments. A group of charities have assisted with the payment. Other requests for charitable support include the replacement of boilers, repair of windows and increasingly requests to meet the costs of a partner’s funeral. There has also been a significant rise in the number of requests for assistance to clear debt and arrears in rent and utility bills.

Many of the most vulnerable pensioners are widows; some of them have devoted their lives to being homemakers and therefore rely on inherited and derived rights for their state pension and a survivor/spouse’s benefit from their late husband’s occupational pension. As a result, the small additional amount the widow receives from an occupational pension often makes them ineligible for pension credit.

In conclusion pensions, for the individual, are complicated and confusing. The attempts to simplify the pensions system and the recent budget changes mean that pensions are a frightening area for many, as they will need to play a more active role in managing their pension pots. Clear communication and accessibility plays a vital part in demystifying the world of pensions. Whether this is by electronic communication or paper correspondence, it should remain the choice of the individual.

As life expectancy continues to increase, consideration needs to be given to the welfare needs of those who have occupational pensions whether from a DB or DC scheme. How will these needs be met? What role should the pension schemes, annuity providers and former employers play?

Malcolm Booth


National Federation of Occupational Pensioners (NFOP)

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