The introduction of pensions freedoms that came into force in April 2015 has without doubt introduced a further layer of complexity for company Defined Contribution (DC) schemes set up under auto-enrolment legislation introduced in 2012. But for smaller companies who are navigating to-wards their auto-enrolment staging date or have recently become auto-enrolment ready, there is now a window of opportunity to integrate processes to cope with pensions freedoms without having to unravel too much hard work.
The introduction of pensions freedoms means, barring any fundamental changes a potential new government will introduce, employees in DC schemes over the age of 55 will have the right to access their pension pots how and when they want. This could be via large lump sums, regular withdrawals over a number of years, or both.
The introduction of pensions freedoms now requires a number of additional action points to consider
Firstly, workforce demographics, particularly age. Analysis of the current age of the work-force, as well as future business plans that may fundamentally affect the make up of the workforce should be undertaken. Where a higher percentage of the workforce is close to 55, the design of the pension scheme in place and investment choices on offer will need to be taken carefully into ac-count.
Secondly, the structure of the pension scheme will need clear thought, so that access to pension funds by eligible members is available on demand. Processes need to be put in place so that the integrity of data is guaranteed, the scheme remains financially robust and members are kept up to date.
Finally, educating employees not only on their pension choices, but also the fact they will be able to access savings when they reach 55 is likely to cause a heightened level of confusion. It will require clear signposting in order for companies to avoid becoming liable in the future for bad decisions made by employees in the past. Remember the key aim of auto-enrolment is to encourage people to save for their retirement, so working with your financial partner to actively engage with employees on choices will become an important part of due diligence. While the changes require extra work, particularly for smaller companies, if dealt with correctly and expert advice sought, both the burden and cost can be significantly reduced. Equally important, is an approach that can help employees engage with their pension scheme and financial choices so that better long term outcomes are achieved.
For further information contact Colin Major 020 7220 7274