The use of pension charges calculators to inform members has become the norm for pension funds, industry experts say, but member engagement is still low.
The latest of such tools from the The Pensions Advisory Service gives employers an idea of the effect of charges on employees’ pensions in auto-enrolment schemes.
The usage of the self-service pension website is relatively low across the board
As the technology in this area has developed and made calculators more sophisticated, they can be a useful tool for engaging employees as well as employers.
A spokesperson for TPAS said: “Our online planners and calculators are one of the most popular sections on our website. Thousands of people use these online tools to help plan for their retirement, each month.”
It also provides planning tools for Saving for retirement, Annuities, Investment choices and a Voluntary national insurance contributions.
“Many people have told us these tools are a valuable resource to help them make decisions about their pension savings and help them feel confident about their plans for later life,” the service said.
Almost all administrators in the UK provide a similar tool to help members calculate the likely outcome from their DC pension scheme, according to Jan Burke, a partner and head of DC consulting at Aon Hewitt.
Burke’s team is developing more sophisticated pension calculators to meet the increased need of employers, members and the Pensions Regulator.
“There is a lot of thinking in this area. We are moving away from just the standard calculator to getting members more empowered about understanding decisions about contributions,” he said.
“It takes on board some of the defined benefit flight path planning ideas. If a member sets an income target, we can explain what level of contribution will be needed.”
However, it also lets members review their target on an annual basis to see the outcome of their projected contribution as the scheme evolves, Burke added.
Online tools in which members can enter different levels of contribution and see what effect it has on their pension are widespread, said Elaine O’Keefe, a senior consultant at Mercer.
Member engagement
The calculators are useful in two ways. “First, members are actually able to work out what their pension benefits are. And second, if you get someone doing something online in an interactive way, you know you have engaged them in the process,” she said.
However, engaging members is the biggest challenge in communicating pensions. The usage of self-service pension websites is relatively low across the board, said O’Keefe.
Members are still very inert about their pension. “You have to put a lot of effort into pushing people toward it,” she added.
She expected this to change in the coming years as more final salary schemes close and DC schemes become more prevalent.
“[What that] means is that the responsibility for your retirement income very much sits with the member. Rather than being passive, you have to get out there and find out about it. The regulator has made it clear that companies and trustees have to meet the needs of the members in a much more proactive way,” she said.
