PRESENTER: Hello and welcome. You’re watching PMI TV, and today I’m joined by Jonathan Watts-Lay, who’s the Director at Wealth at Work, to discuss whether employees are largely abandoned when it comes to retirement. So, Jonathan, good to have you with us today. Well let’s start with the pension changes we saw two years ago. How much has actually changed when it comes to employees, trustees and employers, what sort of challenges do they face?
JONATHAN WATTS-LAY: I think we’ve seen them go through various phases since the new regulations were announced. So I think there was a first phase, which was very much trustees and employers to an extent not really worrying too much about it, and therefore not really doing anything about it. We then went into a second phase I think as the regulations actually came into situ, which was very much particularly trustees thinking about well can we do things within our scheme? But they haven’t done a lot of analysis on that, I think they decided that that wasn’t going to be appropriate, a number of reasons for that. Partly around risk of doing it themselves, there were also issues around creating infrastructure to allow all the various new options to be executed upon, and in turn that had a cost attached to it.
So I think there were various reasons why they thought that wasn’t such a good idea after all. And then there was probably an overriding issue from the employer or member perspective, which is of course freedom and choice is all about looking at all of your assets, so all your pensions. So of course if your current pension provider for the current company you work for changes something, but it doesn’t take into account all the other assets, then actually you haven’t really moved forward too far. So I think it’s only now we’re getting into another phase, which is where we’re seeing a number of companies, a number of trustees actually putting tenders out to the market, where they’re really looking for a retirement service.
PRESENTER: And employers and trustees, have they adapted to these changes?
JONATHAN WATTS-LAY: Well I think they are. And I think in some ways they’re realising now that if they don’t do anything there’s a real issue that at best people retiring from their organisations may not optimise their retirement income, so in essence they make relatively poor decisions, and of course poor decisions just means they have less money every month as income than perhaps they could have done. Or at worse, and we are seeing a lot of this, is the whole issues around scamming. And some of those scams are fraudulent, but some of those scams are not fraudulent, they’re perfectly legal, but actually they carry a lot of risk, and there are examples where those retirees are losing a lot, and in the worst case all of their retirement income.
So I think there’s a bit of a wakeup call that’s occurred in the last two years since freedom of choice has been in, which is really saying look trustees and employers really have to do something here if they’re really going to help effectively protect those members and protect if you like 40 years of savings that those individuals have.
PRESENTER: What can employers and trustees do to support employees when it comes to them understanding their options at retirement?
JONATHAN WATTS-LAY: I think that’s a really key issue. I think one of the issues faced really by the employer and the trustee is just working through well actually how does a member think about this, and what are the sorts of things that we could put in place to help them. And I think in the early days there was this, what I would call this product mentality. So oh is there a product we can get, some sort of magical product that’s going to deliver a complete solution. And of course in reality that’s probably not the case, because people will have a number of different pensions probably. They will have DB pensions, they will have DC pensions. They will probably have other savings as well, such as ISAs or maybe just general savings or investment accounts, so all of this now needs to be taken into account. So there’s a process which we’re certainly trying to get employers and trustees to think about, which is the questions that those members, those individuals are likely to ask.
So the first of those questions is simply well what are my options, what are the things that I need to understand, what are the advantages and disadvantages of those options? The second question then tends to be OK how do I work out what’s absolutely right for me? The third question then tends to be well OK, but how can I implement it? Can I do that in the workplace, do I need to go down the high street, could I go on the internet, how do I do that? And then the fourth issue, which I think is one that hasn’t really been thought about too much until more recently, is ongoing support for those people. Because of course now under the new regulation the decision you make on the day that you retire is not necessarily going to be the right decision to last you 25 years or whatever it might be in retirement. So there’s four key questions really that the employer and the trustee really need to consider.
PRESENTER: So how do you engage employees around pensions and lifetime savings?
JONATHAN WATTS-LAY: So I think to really answer those four questions, so that first question about well how do I know as an individual what my options are, really it’s putting in place education, it’s putting in place guidance. I think a lot of firms that are if you like at the leading edge of this now are putting in education programmes for those that are still employed by the organisation. But then of course the trustees have to think about those that are still in the scheme but they’re deferred members. So they might have left the organisation a number of years ago, and so there’s more, they’re more likely to put guidance in place for those, which can be done over the telephone.
I think the second question in terms of how people actually work out what’s right for them. We’re seeing that regulated advice is becoming more important. And it’s quite interesting actually the interaction between that step one or that first question and that question. Because those people that go through an education and guidance process generally speaking about 70% of them say I think I need regulated advice. So it’s quite an interesting dynamic because it’s almost that issue around if I don’t know what I don’t know then I won’t take advice. When I actually have some information through education, through guidance, then actually I realise I need advice.
PRESENTER: And finally what would you say are the biggest challenges that employers, trustees and employees face over the next 12 months?
JONATHAN WATTS-LAY: I think it’s really making sure they don’t get behind the curve now. So we’ve seen, particularly in the last year we’ve seen a lot of particularly the larger companies and trustee schemes actually going out to tender to buy in these sorts of services. And what they’re realising is of course they have the power to get highly negotiated rates. Now, they may not want to pay those rates themselves. They might want the employee or the member to pay because there could be ongoing costs throughout retirement. But of course what they’ve been able to do is do the due diligence, making sure the service provider they’re getting in ticks all the right boxes, and making sure that they get preferential rates effectively on behalf of their members.
So you end up thinking there’s a real win-win here, where the employer/trustee can use that buying power, but they don’t ultimately have to pay for it themselves, and then the member or the employee can take advantage of that and effectively get a certain amount of protection as they go through retirement. So I think more of that’s happening, I mean there’s live tenders out right now on this sort of stuff. So I think the real danger is that if firms don’t step up there’s going to be almost like a two-tier structure where some are offering fantastic retirement services to their employees and members, and others haven’t really got off the starting block.
PRESENTER: Jonathan, thank you.
JONATHAN WATTS-LAY: Thank you.