One thing about writing on the future is that at the time of writing you cannot be wrong even though you almost certainly will be. However, by the time the future becomes the present almost everyone will have forgotten what you predicted. So with that comfort in mind here are some ideas from Michael Rose on how he sees the future of reward over the next 5 to 10 years.He has identified six themes and for each he suggest the impact on reward. Some are a continuation of existing trends. Others may be new.
Click here for the PDF: http://alturl.com/3t4wd
Monday, 26 July 2010
Friday, 23 July 2010
Needing a nudge?
Article in Engaged Investor.
Girish Menezes explains how sometimes employees need to be ‘nudged’ to make the right decisions – and why members need a healthy financial diet to plan for retirement.
Why is members’ interest in their pensions so important?
Individuals tend to move job more frequently, take more career breaks and continue working for longer than in the past. This has tended to mean that pensions have become less relevant – and less appreciated as a benefit. There is often a real lack of understanding amongst members of pension schemes about their benefits and how they operate. And, there is also often a lack of interest, or ‘member engagement’.
However, this reduced engagement comes at a time when members really need to be more involved in their pension savings. Buck carried out research published in March 2010 that showed 100 per cent of the employers we interviewed have either already closed their DB scheme to new employees or plan to do so in the next three years. As we move into a defined contribution (DC) world, member engagement really matters. Our research also showed that employers are not closing DB schemes because they’ve ceased to care about their employees’ pensions – they are closing them because of the risks involved. 28 per cent of respondents said that they continue to offer a pension because they believe it allows them to remain competitive, and 20 per cent use it as a way of retaining staff. So, employers are still putting substantial contributions into their employees’ pension funds. It’s important that the value is understood – and that members make effective decisions around their savings.
How can we improve engagement?
Buck Consultants established the Financial Frontier Trust, a group of leading HR, pension and benefit professionals and academics, at the beginning of 2010. One of the topics that the group discussed is whether there is such as thing as an ideal ‘financial diet’. Just like the food we eat, our savings need to be in the right proportions – for example, pension savings could be viewed as the ‘protein’ in that diet – a longterm, tax-exempt approach. However there are also short and medium-term needs, analogous to carbohydrates – such as ISAs, or perhaps debt repayment. And, of course, just like a real diet, we do need a sensible amount of fat – or, in the financial diet, higher risk investments like shares.
Unfortunately not everyone has the same appetite for savings as they do for food! People need to be ‘nudged’ towards making financial decisions – just like they sometimes have to be nudged towards making the right diet choices. People tend to avoid making financial decisions – for a variety of reasons including fear and inertia – and need to be ‘nudged’ towards making those decisions through being provided with the right products, services and means of enrolment.
However, not everyone will react positively to being ‘nudged’ – and different demographics will respond to different methods of nudging. The products on offer for savings will be one part of that process – offering the right mix of short, mid and long-term savings for that ‘financial diet’ is one consideration. Another is the way in which members are given information – for example, older members may respond better to printed information, whereas younger employees might be more influenced by social networks such as Facebook and by peer group behaviour.
How can this be applied in practice?
There are a number of ways that employers can help with ‘nudging’ their employees towards creating their own financial security. As we’ve seen, offering the right financial products, giving the right messages and delivering them over the right medium are all vital. Bringing those factors ogether in one easily accessible place is also significant.
Technology has a big role to play in that process. Benefit portals that provide a single centre where an employee can not only see their benefits so far, but also think about their retirement requirements – and even their next career steps – are one option. To date, much of the work that has been done on benefits portals has been in the US – and although there are similarities with the UK, there are also substantial differences.
Buck’s response in the UK is its Compass system, a rewards portal which breaks down employees’ needs from three different angles: ‘see, learn and do’:
See – provides an employee with an overview of all of their company benefits. This could include former DB pensions, the value of current DC pensions, any additional voluntary contributions (AVCs) and any other benefits provided by the company. This could include other savings tools such as ISAs, if they were on offer.
Learn – this section uses ‘stochastic modelling’ to provide best estimates on what employees can expect in their retirement, based on when they expect to retire, how much they are contributing to their savings, their appetite for risk and what their retirement needs will be. It can also give employees information about the next steps in their careers.
Do – this section provides features for members to take practical action – from updating their details, to opening an ISA or increasing their pension contributions. There is definitely an appetite now for this type of approach to benefits - from employers, trustees and scheme members. Technology and strategy can be used to meet that appetite – and feed it with the right financial diet.
Girish Menezes explains how sometimes employees need to be ‘nudged’ to make the right decisions – and why members need a healthy financial diet to plan for retirement.
Why is members’ interest in their pensions so important?
Individuals tend to move job more frequently, take more career breaks and continue working for longer than in the past. This has tended to mean that pensions have become less relevant – and less appreciated as a benefit. There is often a real lack of understanding amongst members of pension schemes about their benefits and how they operate. And, there is also often a lack of interest, or ‘member engagement’.
However, this reduced engagement comes at a time when members really need to be more involved in their pension savings. Buck carried out research published in March 2010 that showed 100 per cent of the employers we interviewed have either already closed their DB scheme to new employees or plan to do so in the next three years. As we move into a defined contribution (DC) world, member engagement really matters. Our research also showed that employers are not closing DB schemes because they’ve ceased to care about their employees’ pensions – they are closing them because of the risks involved. 28 per cent of respondents said that they continue to offer a pension because they believe it allows them to remain competitive, and 20 per cent use it as a way of retaining staff. So, employers are still putting substantial contributions into their employees’ pension funds. It’s important that the value is understood – and that members make effective decisions around their savings.
How can we improve engagement?
Buck Consultants established the Financial Frontier Trust, a group of leading HR, pension and benefit professionals and academics, at the beginning of 2010. One of the topics that the group discussed is whether there is such as thing as an ideal ‘financial diet’. Just like the food we eat, our savings need to be in the right proportions – for example, pension savings could be viewed as the ‘protein’ in that diet – a longterm, tax-exempt approach. However there are also short and medium-term needs, analogous to carbohydrates – such as ISAs, or perhaps debt repayment. And, of course, just like a real diet, we do need a sensible amount of fat – or, in the financial diet, higher risk investments like shares.
Unfortunately not everyone has the same appetite for savings as they do for food! People need to be ‘nudged’ towards making financial decisions – just like they sometimes have to be nudged towards making the right diet choices. People tend to avoid making financial decisions – for a variety of reasons including fear and inertia – and need to be ‘nudged’ towards making those decisions through being provided with the right products, services and means of enrolment.
However, not everyone will react positively to being ‘nudged’ – and different demographics will respond to different methods of nudging. The products on offer for savings will be one part of that process – offering the right mix of short, mid and long-term savings for that ‘financial diet’ is one consideration. Another is the way in which members are given information – for example, older members may respond better to printed information, whereas younger employees might be more influenced by social networks such as Facebook and by peer group behaviour.
How can this be applied in practice?
There are a number of ways that employers can help with ‘nudging’ their employees towards creating their own financial security. As we’ve seen, offering the right financial products, giving the right messages and delivering them over the right medium are all vital. Bringing those factors ogether in one easily accessible place is also significant.
Technology has a big role to play in that process. Benefit portals that provide a single centre where an employee can not only see their benefits so far, but also think about their retirement requirements – and even their next career steps – are one option. To date, much of the work that has been done on benefits portals has been in the US – and although there are similarities with the UK, there are also substantial differences.
Buck’s response in the UK is its Compass system, a rewards portal which breaks down employees’ needs from three different angles: ‘see, learn and do’:
See – provides an employee with an overview of all of their company benefits. This could include former DB pensions, the value of current DC pensions, any additional voluntary contributions (AVCs) and any other benefits provided by the company. This could include other savings tools such as ISAs, if they were on offer.
Learn – this section uses ‘stochastic modelling’ to provide best estimates on what employees can expect in their retirement, based on when they expect to retire, how much they are contributing to their savings, their appetite for risk and what their retirement needs will be. It can also give employees information about the next steps in their careers.
Do – this section provides features for members to take practical action – from updating their details, to opening an ISA or increasing their pension contributions. There is definitely an appetite now for this type of approach to benefits - from employers, trustees and scheme members. Technology and strategy can be used to meet that appetite – and feed it with the right financial diet.
Thursday, 20 May 2010
Why do we bother about pension?
The world of pension has largely split into at least three distinct points of view .
The rationalist - This group of people insist that employees don't care about pension. They believe that we should give employees the cheapest option that meets legislative requirements.
The realist - The second group of people believe that pensions provide substantial value that is only realised when employees hit their late 30s - early 40s. But engaging employees in choice is a losing battle. They would like the industry to focus on how to give employees the best default (or multiple defaults) possible to ensure that they can retire with safety net below them.
The innovators - Finally, there is a group of people who recognise that employees run complex calculations when playing fantasy football or the lotto. Experience from Australia indicates that given a pot of money, direct investment into shares and financial education - even younger employees get really involved with savings and investment. Companies are spending too much money on pension and benefits not to try to make them engaging. We need to explore options around DC, ISA's, shares and other forms of employer-based financial vehicles to move employees along the financial maturity curve.
The big question of course is - which of these groups of people are right...and in what circumstances (type of employer, employee profile, etc).
I'm running some qualitative and quantitative research around this area. If you have any research that could shed light on this area, do email it to me. If you are interested in the results of this research, do drop me an email at girishmenezes @hotmail.com.
The rationalist - This group of people insist that employees don't care about pension. They believe that we should give employees the cheapest option that meets legislative requirements.
The realist - The second group of people believe that pensions provide substantial value that is only realised when employees hit their late 30s - early 40s. But engaging employees in choice is a losing battle. They would like the industry to focus on how to give employees the best default (or multiple defaults) possible to ensure that they can retire with safety net below them.
The innovators - Finally, there is a group of people who recognise that employees run complex calculations when playing fantasy football or the lotto. Experience from Australia indicates that given a pot of money, direct investment into shares and financial education - even younger employees get really involved with savings and investment. Companies are spending too much money on pension and benefits not to try to make them engaging. We need to explore options around DC, ISA's, shares and other forms of employer-based financial vehicles to move employees along the financial maturity curve.
The big question of course is - which of these groups of people are right...and in what circumstances (type of employer, employee profile, etc).
I'm running some qualitative and quantitative research around this area. If you have any research that could shed light on this area, do email it to me. If you are interested in the results of this research, do drop me an email at girishmenezes @hotmail.com.
Tuesday, 18 May 2010
Compensation & Benefits Manager wanted
Just received a requirement for a UK Compensation & Benefits Manager for a global company. The role is based in London and will have a team of two. Email me for a job specification at girishmenezes@hotmail.com.
Charlie Kirby rocks!
Unfortunately, I missed Pension Rocks, organised by Charlie and Pensions Week.
Have a look at the video here: www.youtube.com/pensionsweek
Apparently, it was a great night and not to be missed the next time around.
Have a look at the video here: www.youtube.com/pensionsweek
Apparently, it was a great night and not to be missed the next time around.
Special Purpose Vehicles for pensions
SPV's are growing in importance to hold contingent assets for pension schemes. There are various advantages, including the possibility of using these for softer assets such as brands and IP. Worth talking to your lawyer or accountant about this. We're probably going to organise an event around this topic. Let me know if you are interested in speaking or attending.
Monday, 17 May 2010
NEST administration contract re-examined
The contract for administering the National Employment Savings Trust will be re-examined, says David Laws.
All secretaries of state have been asked to re-examine all spending approvals since January 1 this year and all pilot schemes. Where projects were good value for money and consistent with the government's priorities, they would go ahead but, where they were not, "it would be irresponsible to waste money on them".
TCS became the only bidder left in the race after Great-West Retirement Services (Europe); Logica UK; and Danish pension fund and administration provider ATP Group withdrew from the competitive dialogue process at the end of last year - leading to questions over whether the contract would be good value. At the time of GWRS's withdrawal Liberal Democrat pensions spokesman Steve Webb said the TCS "had the government over a barrel" and questioned whether the contract would provide value for money.
Auto enrolment and the minimum contribution levels look set to stay. Wouldn't bet on NEST launching in 2012 in the same guise as it is today.
All secretaries of state have been asked to re-examine all spending approvals since January 1 this year and all pilot schemes. Where projects were good value for money and consistent with the government's priorities, they would go ahead but, where they were not, "it would be irresponsible to waste money on them".
TCS became the only bidder left in the race after Great-West Retirement Services (Europe); Logica UK; and Danish pension fund and administration provider ATP Group withdrew from the competitive dialogue process at the end of last year - leading to questions over whether the contract would be good value. At the time of GWRS's withdrawal Liberal Democrat pensions spokesman Steve Webb said the TCS "had the government over a barrel" and questioned whether the contract would provide value for money.
Auto enrolment and the minimum contribution levels look set to stay. Wouldn't bet on NEST launching in 2012 in the same guise as it is today.
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