If your own pension seems complex, spare a thought for the human resources personnel charged with sorting pensions out for entire workforces.
"HR people don't get involved with the investment decision-making side of pensions". Even so, there is still lots to consider says Mary Connaughton, director of the Chartered Institute of Personnel and Development, the professional body for HR practitioners.
“You have to be able to understand the products, and know what options might best suit employees. It is complex and, as a result, is harder than it needs to be for HR to try and get people to engage with the topic, to get them to see if they’re on track for an adequate pension. That’s very difficult.”
In Australia and New Zealand, where pension contributions are mandatory, such difficulties don’t arise. “They have gone through their pain over there in relation to changes to pension legislation and as a result have a much simpler system that people are more willing to engage with,” she says.
In Ireland, there is no mandatory retirement age - most people still expect to retire at 65. Yet changes in legislation have seen the State Pension pushed out to age 67, leaving a funding gap for many that is causing increasing concern for HR personnel, particularly as staff may want to stay on, but may not necessarily be entitled to under the terms of their employment.
“That’s a big new issue for HR and it’s a huge pressure to be dealing with people who are in that grey area of hitting the traditional retirement age but not being well enough funded to retire,” says Connaughton.
On top of that are broader concerns about lack of pension coverage, and, where there are pensions, their adequacy.
“Some strong decisions need to be made, that’s what is coming through from HR. Policy issues are required and the sector needs the government to show leadership on this,” she says.
According to Seán Egan, head of sales for Corporate Business at Irish Life, "Irish Life Empower aims to make pensions simpler. We work in partnership with HR managers to help their staff understand their retirement target." Simplifying pensions is something that matters to HR practitioners because pensions are an important part of employer rewards strategies.
"It's a huge topic for employers right now, given our ageing population," says Caroline McEnery of HR Suite, a provider of outsourced HR services to businesses across Ireland. She believes the introduction of an "opt out" pension contribution system for staff, as already exists in the UK, is the most likely way to remedy the lack of coverage.
This looming pension deficit is pushing pension provision centre stage in the war for talent. “In an environment where people are living for longer, and therefore need to fund retirement for longer, pensions are an increasingly important way to attract and retain people,” says McEnery.
Ensuring staff are retirement ready is also increasingly important to employers.
Pension contributions can constitute a significant investment for employers, sometimes up to 10 per cent of the salaries they are paying. Irish Life’s experience with HR managers is that staff don’t always fully appreciate the benefit of their company paying pension contributions. “It’s because pensions seem so far away,” says Egan. “It sometimes feels for employers that if they were giving a much cheaper gym membership they’d get more thanks for it simply because it’s a more immediate benefit.”
Part of the service Irish Life offers is to meet with staff to encourage them to get involved with and appreciate their pension.
As well as IT systems that make life easier for HR personnel by enabling pension contributions to be made automatically with the monthly pay roll, Irish Life offer company pension services, including “soft opt-in” schemes designed to improve take up.
“We go in and meet with staff directly to see that they are on track retirement-wise. We show them how they are faring with their pension, and outline the valuable investment their employer is making on their behalf,” says Egan. “We help take the complexity out of pensions for them.”
“By helping to explain all that tax-free growth pension contributions give them, we can help ensure employers get a better bang for their pensions buck.”
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