outlooks - xerox · pdf fileit might impact you more than you think. sue pemberton, our head...
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January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Find out more.To find out more about any of the articles in this issue, or to talk to us about how we can support you, email us on [email protected] or call 0800 066 5433.
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Welcome to Outlooks, your view across the wider world of all things pensions and benefits.
2 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Pension freedoms: what your employees don’t know.Do you know what your staff are doing outside of your workplace pension scheme? It might impact you more than you think.Sue Pemberton, our Head of Corporate DC Consulting, looks at the lesser known impacts of the pension freedoms changes.
As an employer, you could be forgiven for not being overly interested in what your staff are doing outside of your workplace pension scheme. However, some HR managers are discovering that, when their staff take benefits outside of their scheme, there are some significant unintentional impacts – and by then it’s too late to help them.
Firstly, if a pension fund is taken entirely as cash, the taxable element is regarded as ‘income’ and is included in any assessment made for means tested State Benefits. This is particularly topical currently, with the government considering reductions to tax credits.
The second issue is if members of your workplace pension scheme take their benefits in this way, their annual allowance should be reduced to £10,000. The annual allowance is the level of contributions (both employer and employee) that qualifies for full tax relief each year. However, even when contributions are considerably below £10,000, individuals will need to notify the provider of their workplace pension plan within 91 days of taking benefits. If they fail to do this, HMRC can impose an on the spot fine of £300 and increase this by £60 per day until a notification has been received.
I’ve spoken to HR managers who’ve been approached by some very distressed staff asking for help as, in some cases, the combination of reduced tax credits and fines could eat up a large proportion of the cash received. Accusations of “why didn’t you tell me this could happen?” and “what can you do to help?” are becoming more common and unfortunately, by this stage, there is nothing they can do.
However, many HR managers are using this as an opportunity to remind their staff about the benefits of saving in the workplace pension, whilst providing timely warnings to those tempted to take benefits outside of this. Newsletters, presentations and small workshops have all proven to be very popular among our clients and raised the profile of schemes, resulting in increased contributions and importantly higher appreciation and understanding of the benefits provided.
Where personal contributions are paid through salary sacrifice, this also results in an increased saving by the employer in National Insurance, and that can contribute to the cost of the additional communications, so good news all round. No HR manager wants to have to tell a tearful employee that there is nothing they can do to change the loss of benefits or the tax fine received; but a timely warning and information on tax on private pension contributions can significantly reduce the risk of this happening.
Sue PembertonHead of Corporate DC Consulting, UK
[email protected]@SueJPemberton
3 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Fiduciary management – the independent voice in the room.Fiduciary management in the UK continues to grow rapidly, and fully delegated fiduciary mandates are becoming increasingly popular among trustees. With this rise in popularity, one of our Investment Consultants William Parry, explores the importance of fiduciary manager evaluation in the process.
Fiduciary management is becoming increasingly attractive for some trustees boards. Access to a team that is dedicated to the day-to-day running of the pension scheme’s assets is an appealing solution. This is particularly apt for trustees who find it difficult to make and implement decisions within their own governance structure. Speed of implementation and ability to react to market developments is far greater with a fiduciary manager.
However, caution must be used when delegating so much responsibility to a single entity. Trustees retain the responsibility, on behalf of their members, to manage and monitor the ongoing progression of the pension scheme. Delegating all responsibility away is not an option.
Bearing this in mind, we undertook our second annual fiduciary manager satisfaction survey. We found that many clients are happy with the services provided by their fiduciary manager. However, only 3 in every 10 clients monitor their fiduciary manager using an independent third party provider. This can have serious repercussions – it implies that most trustees who have delegated responsibility across to fiduciary managers only hear the story of how well they are doing from one (potentially conflicted!) source.
When we delved deeper into the numbers, we found that less than a third of clients review their fiduciary manager on an annual basis, with 35% of clients having no formal review process in place at all.
ongoing basis, a more informed voice in the room may help with fee negotiations. Fiduciary arrangements, as well as having considerable complexity, often have complex charges which can be very opaque in nature. Independent evaluators can run fee-benchmarking exercises to save clients costs.
It is important to consider these suggestions in light of the overall costs of the running of a pension scheme. Ultimately, another layer of governance is going to increase the costs paid by the trustees. This needs to be considered against the risk of neglecting to review and monitor the arrangement. It’s also worth considering additional costs against the potential impact on the overall funding level over a number of years.
Fiduciary managers have come a long way in recent years, with a wide and diverse range of offerings. We believe this industry development can be key for pension schemes of all shapes and sizes. For many trustees – in particular those who struggle to make and implement decisions under their current governance structures – handing responsibility across to a fiduciary manager may prove to be the saving of their funding level. However, the danger remains that ignoring ongoing suitability creates the potential risk of the saving becoming the downfall.
William ParryInvestment Consultant, UK
[email protected]@WilliamRWParry
Less than a third of pension schemes review their fiduciary manager on an annual basis.
...only 3 in every 10 clients monitor their fiduciary manager using an independent third party provider.
have no formal review process in place at all.35%
We also looked at how many fiduciary managers were selected via a competitive tender process, i.e. involving two or more providers. Although open tenders are becoming increasingly common, at least one-third of current arrangements were not selected through an open tender process. This implies that all of these appointments were made via existing relationships and direct recommendations. When combined with the lack of monitoring, this throws into sharp contrast the degree of risk trustees might be taking by remaining in unsuitable arrangements.
We believe it’s imperative that an independent voice is brought into the process. By relying on an expert who is able to analyse and assess the market fully, trustees can be sure that they’re not falling into the “set and forget” trap.
As well as the onus on trustees to ensure that the arrangement is suitable, both at outset and on an
4 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Why choosing investment managers is about quality not quantity.
As pension deficits continue to linger, and investment solutions become more complex to try and tackle these, schemes are raising questions over the ‘optimum’ number of managers, and indeed strategies and asset classes, they should be invested in.
We have seen a number of cases of smaller schemes implementing their investment strategy using only one or two managers capable of running a number of traditional asset classes (i.e. equities and bonds). While this approach is cost effective, there is a significant concentration risk attached. If those one or two managers were to disappoint, the scheme would have no fall back option.
However, in recognition of this issue, many are changing their approach and are now choosing to diversify by using a greater number of managers across a wider spectrum of asset classes: that way reducing concentration risk and maximising the opportunities for returns.
Whilst there are clearly strong arguments for diversification, where schemes can benefit from manager concentration is when trustees set investment targets based on scheme specifics. For instance, schemes are increasingly likely to employ single managers for specific mandates, i.e. a passive manager to provide low-cost access to an otherwise highly expensive asset class.
It’s key to remember that no single option is right for all. As long as schemes are confident in the ability of their investments to deliver on their objectives, schemes should not be concerned about the issue of manager concentration. What is of utmost importance is that trustees take the time to get to grips with the overall approaches available to them, before thoroughly assessing the managers (whether that be two managers or multiple managers!) that are best placed to help them reach their investment goals.
Movers and shakers
Nick RidgwayHead of Investment Research, UK
We’re very proud of our hard working staff. And so we’re really pleased to be able to share with you the latest news about the teams behind the work we deliver for you. Firstly, congratulations to our two new department heads: Celene Lee, who’s taken up the post of Head of Investment Consulting, and Chloe Port, who is now our Head of Employee Communications: both internal promotions.
Celene Lee Chloe Port
There’s also good news about our support staff: we’ve just set up a new administration team in our Ipswich office, and we’re expanding our Manchester office too.
Head of Investment Research, Nick Ridgway, looks at the importance of taking the rightapproach to investment management.
5 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Ducks in a row: how to create the vision for HR technology.HR technology, when applied well, has the potential to make a positive difference in the lives of employees and improve organisational results.Lori Block, an expert in Communication and Technology, looks at a global approach to defining an HR technology strategy for the future.
There may be nothing more powerful and effective at portraying and positioning the organisation’s commitment to its people than HR technology— through its wellness programmes, services, total rewards strategy and programmes, organisational culture and approach to employee engagement.
But when HR comes to making the business case for acquiring new technology, things get tough: evaluating vendors, costing out solutions, estimating disruptions during implementation, determining how current and new systems will talk to each other. When you add to that trying to get reliable numbers to figure out what Finance always needs to know – the return on this investment – it’s understandable why a strong vision, or a strong action plan, or both, get lost along the way.
Our own experience has consistently shown the value of taking a step back to validate the objectives and business imperatives behind adopting this or that solution. And if the technology is employee-facing, you need to know what behaviours are important to drive and, the full scope of what needs to be done. You also need to evaluate priorities, and identify how various activities impact one another. Making an initial investment to “get your ducks in a row” has a significant impact on the overall effectiveness of any technology changes and the firm’s ability to achieve its long-term goals, using technology as an enabler.
This important first stage is what we call “Phase Zero.” It comprises four steps and results in a true business justification for the project, as well as a compelling vision and achievable action plan.
Phase Zero: Defining the right strategy The primary outcomes from this investment include: • A confirmation of your ultimate service – and
information – delivery mode. • A high-level analysis of your current technology
environment, identifying what data and administrative tools are currently in place for employees.
• A high-level phased implementation plan. • A high-level proposed navigation schema. • Business justification for the impending initiative.
Simply documenting the desired outcomes and corresponding success measures that will be employed to determine whether those outcomes are achieved often is enough.
For example, did we: • Increase the credibility of your HR programmes? • Enhance the health status of your employees? • Align programmes with organisational strategy
and operational goals? • Reduce costs and increase efficiency?
Regardless what it is being applied to, Phase Zero helps ensure that the needs and wants of the end user are addressed right from the start.
Preparation Collect and review data and documentation to develop an effective strategy.
Roadmapping Create a roadmap that outlines all the tactical activities required, based on priority, dependencies and resource constraints, to achieve the desired “Day One” results, while also documenting the long-term vision.
Definition Hold a cross-functional strategy workshop, using the “imperatives-strategies-tactics” approach, through which business imperatives are linked to the HR technology strategy. Then, based on the strategies associated with each imperative, begin to define the activities required to execute those strategies, taking into account relative priorities, potential dependencies, and other in-flight or planned activities.
Validation Validate the detailed list of activities and timing, and ultimately finalise the Roadmap.
Lori BlockPrincipal, Communication and Technology, Engagement Practice, US
6 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
An unbelievable investment opportunity!Incredible returns and amazing growth in alternative investments. Who wouldn’t want that for their pension benefits?But all is not as rosy as it may seem, explains Gary Crockford, Head of Knowledge and Research.
Cape Verde is a country comprising a number of islands some 500km off the West Coast of Africa. Colonised by the Portuguese in the 15th century, it prospered from the Atlantic slave trade, attracting merchants, privateers and pirates. Sir Francis Drake stopped by to sack the then capital a couple of times in 1558. Today, Cape Verde is a centre for tourism. A great climate and a reputation as the most stable democracy in Africa mean that the future looks rosy for this particular set of islands. A fact that has not gone unnoticed by a number of pension and investment fraudsters.
The National Fraud Intelligence Bureau (NFIB) has just issued a “Pension Scam alert”, warning members of the public (particularly in their 50s or 60s) to beware of firms offering investments in alternative commodities such as hotel development or property in Cape Verde. Suspect firms, often cold calling “pension companies”, who are not regulated by the Financial Conduct Authority (but who call themselves “trustees”, “consultants” or “independent advisers”), are offering eye watering returns in both capital and investment growth in alternative investments. We have seen glossy
brochures offering capital growth of 6% per annum and an annual return on investment of close to 12%. Who wouldn’t want their pension pot to increase in size at that sort of rate? The problem, say the NFIB, is that “if the offer seems too good to be true, then it generally is.”
either doesn’t exist or which isn’t worth what a member has been promised. Many victims of this fraud may take years to discover their benefits have disappeared or are, at best, worth a lot less than they originally thought. There can be reluctance in some people to actually accept they have been fooled. Discovering you have lost all your pension benefits can be devastating and according to the regulators has led to at least one suicide.
Anyone thinking of investing their pension benefits in alternative benefits, and particularly in Cape Verde property, should take advice from an adviser authorised by the Financial Conduct Authority and should be wary of firms which cold call or put pressure on them to sign documentation quickly. It might cost money to take proper advice, but the alternative could be to lose the whole of your pension benefits with no comeback should it turn out you have made a life changing mistake. If they really thought they could safely get capital growth of 6% per annum and an annual return on investment of close to 12%, the trustees of your existing pension schemes would already be investing in such options. As a trustee of a defined benefit arrangement, despite reading the glossy brochures, I think I will give this “once in a lifetime” opportunity a miss. I don’t need a regulated financial adviser to tell me that it’s as fishy as Cachupa, a slow cooked stew of corn, beans and fish which is popular on Cape Verde.
Gary CrockfordHead of Knowledge and Resource Centre, UK
[email protected]@GaryCrockford
If the offer seems too good to be true, then it generally is.
Victims are often encouraged to set up Small Self-Administered Schemes (SSASs) for their pension benefits. There is nothing fundamentally wrong with setting up a SSAS as long as the effects of doing so are fully explained to you. However once the SSAS has been set up and the pension benefits of a member transferred to it, the benefits are then invested in investments, such as property in Cape Verde, which
7 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Will an ageing workforce change the face of the employee benefits package? The combination of changing retirement legislation and a lack of employee pension savings means employers are being faced with the inevitability of an ageing workforce. David Piltz, Head of Trustee Services, shares his views on how this might impact employee benefits packages.
Until October 2011, an employer could compulsorily retire employees at 65. In the run up to this, a number of employers pre-empted the legislation and retired elderly workers whilst it was still legal to do so. At the time, Longleat hit the headlines for retiring all their staff who had reached 65. These included 18 workers over 70, seven over the age of 75 and two members of staff in their 80s. On that occasion, Longleat said it was undergoing a “modernisation programme” and it was “inevitable that we require people with new diverse skills and experience”.
Employee Benefits recently published the results of a survey it has undertaken, which unsurprisingly show 67% of respondents believe staff will have to work longer to rely on current assets in retirement. Employers
are going to have to accept the implications of their workforce increasing in average age even if they take steps now to mitigate the issues. The decline in final salary pension arrangements, and the increase in the age at which state pension is paid, will increasingly mean today’s employees won’t be able to retire at the same age as their parents did.
Employers can’t stop staff working to their 70s and 80s, but they can take steps to at least ensure that lack of finance doesn’t leave them with an aged disgruntled workforce who would like to retire but can’t afford to do so. Increasing employer contributions to their defined contribution pension scheme arrangements is one option, but so is better education of the workforce on pensions issues. Some 30% of respondents to the above
survey said their most frequent concern that staff have around retirement is the lack of knowledge about how much they need to contribute into their pension in order to achieve their retirement goals. There is also more work to be done around pension scheme investments, and in particular default funds, if members are to achieve what the Regulator increasingly optimistically calls “good outcomes”.
How are you going to attract new talent if there’s a bottleneck of older workers who show no signs of retiring? Also, how are you going to ensure the staff who are working into their 70s are motivated, productive and happy and not simply working their ticket until they do have enough money to retire on?
As an employer, even if you are taking steps to mitigate the issue, an ageing workforce is almost inevitable and it would be wise to start taking steps now in recognition of this. Inevitably, the older you get, the more healthcare issues are likely to be an issue. Moreover, many benefits which traditionally make up an employee benefit package, such as childcare and the cycle to work scheme, may seem less attractive to those workers in their 80s. So, as well as reviewing your pension provision, you should be looking at your employee package as a whole with at least one eye on the horizon. Employers may increasingly have to think outside the box and come up with new solutions… and I don’t mean feeding elderly workers to the lions.
David PiltzHead of Trustee Services, UK
[email protected]@David_Piltz
8 Outlooks | January 2016
Outlooks Your regular roundup of the pensions and benefits industry.
Are you ready for Gen Z?While many organisations are still just beginning to adapt their workplaces for Gen Y, the next generation – Gen Z, born between 1995 and 2010 – has already begun its debut into the working world. Senior Communication Consultant, Caitlin Crowley, looks at the issue that’s about to hit companies around the globe.
With the first wave of Gen Z students graduating from university next year, it’s time to start thinking about the impact they will have on your business, as well as your recruitment and retention strategies. How will you get and keep top Gen Z talent, while transitioning Gen Y to become effective managers?
At first glance, Gen Z may seem to be just an extension of Gen Y, but there are some noticeable differences in how they work.
Thought to be more responsible and hard-working than the previous generation, Gen Z grew up during the recession, and they saw how it impacted their Gen X parents, who involved them in household purchasing and decision-making at an early age.
But despite their frugal and hardworking nature, Gen Z individuals still place significant value on finding a “cool” work environment that is laidback, social and appeals to their lifestyle, and whether they believe the company aligns with their personal values and interests.
According to a 2014 survey by Mintel, 61% of Gen Z employees want to own their own business. So companies will need to foster their entrepreneurial drive and channel it toward business results. Offering work perks such as recreational game areas and complimentary food and beverages will appeal to their ideal environment and sense of community at work.
According to a survey by salt (a communications consulting firm), nearly three-quarters of Gen Z individuals believe businesses are responsible for creating a better world – meaning companies will have to take an active role in defining their values and engage in corporate social responsibility initiatives to appeal to top Gen Z talent.
In addition, it’s difficult to keep Gen Z engaged; they consume information quickly, on multiple platforms and screens. Communicating with Gen Z will be one of the greatest areas of disconnect for Gen X & Y managers, who will need to avoid the long-form messaging they’re used to. Say goodbye to email, newsletters – and even blogs – if you want to communicate effectively with Gen Z!
Workplace technologies with organised graphic elements, such as portals and intranets, will play a critical role in engaging this generation of employees, as well as ensuring adequate knowledge transfer and operational efficiency. This also includes project management apps, where managers can assign tasks and build project groups, as well as instant messaging threads for quick communication between team members.
Managers will need to leverage these tools and platforms to deliver short bursts of information, including visual elements. Short, informal in-person communication will also be an asset in connecting with teams, replacing long email threads and meetings where Gen Z employees may get easily distracted or lose interest.
As with any generation, attracting and retaining top talent will come down to appealing to core general needs. Keeping this in mind, here are a few tips for handling Gen Z.1. Be socially and environmentally conscious and
involved.2. Focus on fun in the workplace.3. Engage Gen Z employees in entrepreneurial projects
that make them feel independent.4. Encourage collaboration and involve them in
decision-making5. Communicate using short, visual messages available
on multiple devices.
While this generation seems to work at hyper-speed compared to the rest of the workplace, don’t worry. Their willingness to contribute, create and succeed will prove very valuable to the future of business.
Caitlin CrowleySenior Communication Consultant, Canada
Outlooks Your regular roundup of the pensions and benefits industry.
Upcoming seminarsOn Tuesday 2nd and Wednesday 10th February, we’re holding two breakfast seminars on the topic of the changing pension tax allowances, and how you can help your employees avoid unexpected charges.
Also on Tuesday 23rd February, we will again be partnering with the HCA to bring you a seminar on dealing with cancer in the workplace. If you’re interested in attending any of these events, or if you’d like to make sure you’re on our mailing list to hear about all our future events, let us know by sending an email to [email protected].
Pension training sessionsOur popular pension training courses continue in 2016, covering both defined contribution (DC) and defined benefit (DB) schemes. So, whether you’re looking after a corporate or trust based pension scheme, our courses can give you the practical information you need to be more effective in your role.
Date Title LocationFriday 11th March Introductory DB course ManchesterFriday 13th May Introductory DC course LondonFriday 7th October Introductory DB course LondonFriday 11th November Introductory DC course Manchester
Life beyond HR and pensionsPensions and benefits is our bread and butter. And we’re good at it. But we’re nice people too, and it’s important to us to be able to give back to the communities in which we work. So in 2015, we set up some new ways our teams can do this. These include national and regional charities of the year (chosen by our staff) and regular fundraising events to help us achieve our goals – like cake sales (who doesn’t like cake?), dress down days, and even fun runs dressed as Santa!
Social-ise with usFor all the latest news, make sure you’re following us on Twitter (@XeroxHRInsights) and LinkedIn. And you can follow our two key business leaders as well – John Deacon (@john__deacon) and David Piltz (@david_piltz).
We’re on the telly! Have you seen the new Xerox adverts that launched in the autumn of last year? Those eagle-eyed readers who watch Sky News might have spotted a series of new TV adverts demonstrating how work can work better with Xerox. But don’t worry if you’ve missed them, you can take a look on YouTube instead.
97% client happiness We really know our stuff. Which means you can be sure that your pension and benefit challenges are being dealt with by a team of experts you can trust. In fact, 97% of our clients say that they’re happy with their overall relationship with us. Take a look at some more reasons why we’re the consultancy you can rely on.
Xerox HR Consulting and Xerox HR Services are UK trading names of the following: Buck Consultants Limited (registered number 1615055), Buck Consultants (Administration & Investment) Limited (registered number 1034719) and Buck Consultants (Healthcare) Limited (registered number 172919) are private limited liability companies registered in England and Wales and all have their registered office at 160 Queen Victoria Street, London EC4V 4AN. Buck Consultants (Administration & Investment) Limited and Buck Consultants (Healthcare) Limited are authorised and regulated by the Financial Conduct Authority.
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