Are you managing members' income expectations?

The Hellenic epic has shattered Greek hopes and dreams for a comfortable retirement. 

Pension benefits in Greece have already been cut by roughly 45 per cent since 2010, reducing the average pension to €700 (£498) a month.

The problem with managing expectations is getting people engaged and helping them to understand what benefit they’re actually going to get from the scheme

Adrian Kennett, Dalriada

Nearly half of Greek pensioners now receive less than €665 a month and, with little sign of a resolution to the crisis, are having to revise down their retirement expectations.

Away from the plight of Greek pensioners, the UK pensions industry has had a whirlwind 18 months of new legislation and regulatory change.

Beyond pension freedoms and the defined benefit funding code, the exodus of employers out of DB arrangements into defined contribution provision is gathering momentum.

Paradigm shift

This shift has changed the long-term outlook for the British retirement experience. 

The DC environment presents a whole new challenge to the industry, namely in replacing the idyllic vision of a wholesome and bountiful later life with a firm realisation of the need to build an adequate income.

Adrian Kennett, director at professional trustee company Dalriada, said widespread disengagement with pensions across the general population makes trustees’ jobs all the more difficult.

“The problem with managing expectations is getting people engaged and getting them to understand what benefit they’re actually going to get from the scheme,” he said.

Kennett compared how people interact with their pension statement versus their bank or mortgage statement.

“They don’t really pay that much attention to it,” he said. “There is nothing out there that exists at the moment… which shows everything [members] will get from various sources. You need to string it all together and hand it over to someone.”

Kennett said the industry should take advantage of the approaching deadline for the end of contracting-out and the introduction of the single-tier state pension in a push for enhanced transparency around members’ retirement income prospects to enable better long-term planning.

“Trustees’ duty is to explain what is there in as clear a form as possible,” he said, adding: “You need to embrace as many different mechanisms for communicating that as possible.”

Targeted education 

Wayne Phelan, managing director at professional trustee company PSIT, said employers and trustees should take advantage of time set aside for employees' annual reviews and appraisals to allow reflection on the current outlook for their retirement income.

“We never seem to squeeze any time into… financial literacy or time to sit down and focus on pensions, which is a very big part of [employees'] salary,” he said.

“When you go through review cycles with people, again give them some time to think about pensions so they can use that as opportunity to determine whether they’re paying enough, whether they’re in the right funds and when they want to retire,” he said.  

Mark Ashworth, chair of trusteeship at investment advisory Law Debenture, said it is important for trustees to put themselves in members’ shoes when aiming to enhance member understanding and awareness.

“Little and often is generally better,” he said. “But we need to be using all media channels and types, there is a role for good old fashioned paper… for websites [and] for other media – we need an integrated approach.”