Try to be Flexible: How SMEs Can Attract Staff

It may once have been true that the most talented individuals would look for employment at large, well-known companies. Substantial budgets allow big organisations to offer higher salaries and broad ranging benefits. However, it is becoming increasingly the case that talented people seek the informal environment and varied workload offered by SMEs. Big salaries have become less important than overall job satisfaction, which is dependent on a myriad factors.

There are countless advantages of working for an SME. Firstly, there are fewer employees and so staff members are able to build rewarding relationships, thus forming solid, more productive teams. A Great Place to Work, a global human resources firm, studied successful workplaces for 30 years and reported that “investing in a high-trust workplace culture yields distinct, tangible business benefits” including attracting “better quality job applicants”.[1] Furthermore, most employees will have the opportunity to work closely with senior management, so work is more likely to get noticed and ideas are more likely to be heard. The environment of an SME is generally less formal and bureaucratic and the work more varied; this keeps employees engaged and drives productivity.

The best employees are most likely to be career-focused people. As such, you will need to show them that you can offer promotion possibilities that come with additional perks along with additional responsibilities. SMEs typically have fewer employees than larger companies and so there is more opportunity to demonstrate creativity and skill. Let potential recruits know that there is room within your SME to develop and flourish and that their efforts will be rewarded with appropriate promotion.

SMEs that are recruiting must focus on projecting the message that their work environment is more progressive and desirable than that of a larger company. A company website is an excellent shop window: photographs and website content (blog posts, for example) should reflect the flexible, exciting environment you can offer as an SME. Optimise your use of social media to connect with younger talent and extol the benefits of working for an SME.

Attaining a better work/life balance has become a high priority for most employees and SMEs are best placed to offer desirable flexible working hours. According to recruitment agency Robert Half, 29% of HR executives found that work flexibility was the main motivator for staff members.[2] The offer of split-shifts, customised hours or telecommuting will appeal to potential workers, particularly those with young families.

An excellent benefit scheme is a way for SMEs to attract high-calibre employees. In their most recent annual trends survey, MetLife reported that in 2014, employees who claimed to be very satisfied with their workplace benefits were almost four times more likely to be very satisfied with their jobs.[3] Similarly, a study by Bupa last year found that 42% of SME workers felt that workplace benefits were the most important consideration when choosing a job.[4] This is good news for SMEs who may often find it easier to make changes to their benefit schemes compared with larger organisations and so are able to integrate features that will appeal to new recruits.

Flexible benefit plans allow employees to select the additional benefits that best suit their lives, such as increased pension contributions, childcare vouchers, subsidised training, and access to mentoring, company cars and entertainment incentives. Healthcare is one workplace benefit that is increasingly in demand as it offers real value to employees.

Attracting the best recruits may seem like a daunting task for some SMEs. But, in actuality, SMEs are more than able to attract staff by capitalising on those aspects of their work environment that separate them from large organisations. Flexibility is of primary importance in the battle for human capital so don’t underestimate the power of a flexible benefit package, not only to motivate existing employees but also to attract new recruits.

Mark Howlett
CEO

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstone.co.uk

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[1] http://www.greatplacetowork.com/our-approach/what-are-the-benefits-great-workplaces

[2] http://www.roberthalf.co.uk/how-to-attract-the-best-talent

[3] https://benefittrends.metlife.com/benefits-impact

[4] http://www.bupa.com/media-centre/press-releases/uk/flexibility-key-to-retention-and-happiness-in-uk-smes/

A Fond Farewell to Webb

Following the disastrous result for the Liberal Democrats in the General Election last week, several excellent MPs have lost their parliamentary seats, including the Pensions Minister Steve Webb. The fact that we are losing, arguably, the best minister to emerge from the coalition, is gloomy indeed. The reforms implemented by Steve Webb, the Minister for State Pensions,[1] have made the current pensions system far fairer and have allowed people far more financial freedoms. Despite receiving over 18,000 votes, Webb lost his seat in Thornbury & Yate to Conservative candidate Luke Hall. In a recent message on Facebook, Webb thanked his supporters for their backing and expressed his gratitude at having the opportunity to serve 18 years in Parliament. One of the sad truths of the way we assemble governments in the UK is that elections sometimes result in worthy and dedicated ministers being cast out; Steve Webb is an example of this in action.

David Cameron recently announced that Ros Altmann, a high-profile campaigner on pensions issues has been appointed pensions minister. Altmann is a City banker by training and previously worked as a director of Saga. Whilst her appointment has been widely welcomed by the pensions industry, only time will tell whether Altmann will have the same impact on the pensions system as Webb did.
During Webb’s time in the Department for Work and Pensions we have witnessed seismic change in the country’s pension system. Despite there being 10.3 million people over the age of 65 in the UK, a figure that has risen 80% since 1951, many of us are not saving enough money to see us through retirement.[2] In order to address this fact the Department for Work and Pensions introduced auto-enrolment.[3] Enrolling employees automatically into affordable and attractive workplace pensions may be a challenge of administration for employers, but auto-enrolment addresses a far greater problem. An ageing population means that more and more of us will be reliant for longer and longer on money saved from past employment. Therefore it is vital that employers honour the legal obligations inherent to auto-enrolment. If needed, there are many means by which employers can seek advice as to how to manage auto-enrolment and make the necessary payments.

Webb spearheaded several radical changes to pension policy. Now, those over 55 with a defined contribution (DC) pension policy are able to spend their pension pots should they wish to, rather than having to wait until their official retirement age. Although these new freedoms have led to concerns that many pensioners will blow their pension pots on “Lamborghinis”, it seems unlikely that those who have diligently saved their money in a pension fund would blow it all at once simply because they can. Indeed, research from Prudential Plc at the time the pension reforms were introduced suggested that only 2% of over 55s were thinking of making large purchases with their pension pots.[4]

It is more likely that pensioners will chose one of the other available options and either take out a small amount of money from their pension each year or buy an annuity. These freedoms signified Webb’s faith in the ability of the UK population to act responsibly. This faith is rarely seen in government ministers.[5] Rachel Reeves, the Labour Shadow Minister for Work and Pensions, expressed fears that some pensioners may be at risk of being ripped off by fraudsters or “forced to pay excessive fees”.[6] And she warned that pension providers were unprepared for the bombardment of people asking for advice on what to do with their pensions.[7] In contrast, when confronted with think-tank proposals to implement default retirement systems for DC pensions savers, Webb rejected them as unnecessary, adding that “There is no inconsistency between helping people do something they would not otherwise do – like building up pension savings – and then recognising that everyone is different and people should be free to do what they like with [their pension].”[8]

Webb is also responsible for the newly implemented 0.75% cap on pension charges. This cap will end the over the top charges enforced by pension providers and initiate a ban to hidden costs. This will make a huge difference to the individual and the UK as a whole: an employee with a pension pot of £30, 000 could benefit by £1,600 with a saving scheme that charged 0.75% compared to one that charged 1.5%.[9] In addition, the government estimates that an extra £195 million of pension contributions will turn into pension savings over the next 10 years.[10] In summary, the benefits are clear: not only are employees automatically enrolled into pension schemes, but their money is protected from excessive charges, and finally, their pension is handed back to them to invest or save or spend upon their retirement.

It is evident that Webb was passionate about the importance of pensions. During his time in Parliament he certainly made a string of bold and decisive moves; but the reforms put in place clearly show that he understood the nuances of pension policy.  Even though Webb is no longer the Minister for State and Pensions, he will be remembered as having an extremely positive impact on the UK pensions industry and is sure to be a very tough act for Altmann to follow.

Mark Howlett
CEO

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstone.co.uk

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[1] https://www.gov.uk/government/ministers

[2] Population ageing: statistics house of commons library

[3] https://www.gov.uk/government/policies/helping-people-save-more-for-their-retirement-through-workplace-pensions

[4] http://www.cityam.com/213081/pension-changes-april-2015-five-things-you-need-know

[5] Gov https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

[6] http://citywire.co.uk/new-model-adviser/news/labour-calls-for-pensions-cooling-off-period-to-stop-scams/a808009

[7] http://www.theweek.co.uk/budget-2015/62997/pension-changes-will-they-come-back-to-bite-britain

[8] http://www.ipe.com/countries/uk/uk-minister-dismisses-auto-protection-as-politicians-clash-on-paternalism/10006953.article

[9] http://www.theguardian.com/money/2015/mar/02/fca-pension-fees-charges-cap-criticism

[10] https://www.gov.uk/government/news/an-end-to-rip-off-pension-charges-webb

For Sale - Annuity Policy. One Careful Owner.

After several weeks of speculation, the Treasury yesterday released its "consultation" on selling annuities (available here). Indeed, the Government seem to prefer to call it a "call for evidence" - which is a bit like saying that it's an idea that George Osborne came up with one evening, after a few beers in the pub with Steve Webb (although Osborne doesn't strike me as a beer type, perhaps it was a few glasses of claret), which still needs to be fleshed out a bit.

The document makes it pretty clear that there's an awful lot of important detail that hasn't really been worked out. For example, the Government still seems undecided about whether to allow annuity providers to “buy back” annuity policies from policyholders, as an alternative to selling an annuity to a third party. The Government is clear that “consumer protection” is required, but the nature of that protection is unclear. Fundamentally, if you are selling your annuity, the advice you need is whether the sum you are offered is a good deal, which boils down to whether the party buying your annuity thinks you are in better health than you really are.

Practical problems - like how to work out when an annuitant dies, if the annuitant no longer has an interest in the annuity policy - are flagged, but the Government doesn't seem to have a clear view on how to solve them.

The Government seems to want to make the sale of an annuity to a third party subject to the agreement of the annuity provider. Now why would an insurance company agree to this? The risk for the insurer is that they overpay on the annuity policy because the new owner of the policy has no idea whether the annuitant is alive or dead. So I anticipate that insurers will be reluctant to agree, unless they can charge a fat fee for the pleasure of doing so - which may simply mean that the option to sell an annuity becomes prohibitively expensive.

Notwithstanding this lack of detail, the Treasury is optimistic enough to budget over £500m in extra tax revenue (in the first year alone) as a result of annuity sales. This must assume that not only will annuitants sell their policy, but that they will also take the proceeds more quickly than would otherwise be the case, thus accelerating tax revenue. There is a certain irony about this - in the introduction to the consultation, the Government says that it "believes that for most people, keeping their annuity income will be the right decision" - yet clearly the Treasury think that enough people will make the "wrong" the decision to give them a significant tax revenue hike.

Ultimately, this half-baked policy feels like opportunistic electioneering – the vagueness of the consultation gives the impression that, post-election, it might quietly be kicked into the long grass, to wither and die.

John Broome Saunders

Actuarial Director

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstone.co.uk

Bond yields: unwelcome news for defined benefit pension scheme sponsors

Bond yields are at all-time lows. Notably, long-date corporate bond yields ended the year as low as they’ve been for at least a decade. My handy source of data doesn’t really go back much further, but I wouldn’t be surprised if they’ve never been this low – ever.

 (Source: FT-SE Actuaries indices, Markit iBoxx indices)

This may be great news if you are invested in bonds, but for many defined benefit pension scheme sponsors it is unwelcome news. Unfortunately, pension liabilities on corporate balance sheets should be calculated using a discount rate equal to corporate bond yields. Thus, as yields have fallen, balance sheet liabilities have risen – our friends at Mercer have estimated that overall balance sheet deficits could have doubled over 2014.

Some sponsors may be ambivalent about such balance sheet volatility – taking the longer-term view that what goes up, must come down. But others may be more sensitive, worried about how an apparent weak balance sheet might be perceived by customers, lenders, and possibly even shareholders.

Low corporate bond yields could have other effects. I have a client who pegs commutation factors (the conversion rates used to determine how much pension is reduce by when a member opts for a lump sum on retirement) to corporate bond yields. As yields have fallen, those rates have become steadily more generous – great news for scheme members at retirement, but potentially very expensive for the scheme sponsor. Transfer values are usually linked to bond yields as well, so they too will have become more generous.

Balance sheet volatility may encourage sponsors to try and do a better job of matching assets and liabilities. But trying to match when yields are low means locking in at what feels like precisely the wrong time – unless of course you take the view that in 6 months’ time I’ll still be saying that bond yields are at an all-time low.

John Broome Saunders
Actuarial Director
Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk

Collapsing yields prompt another pensions crisis

With long gilt yields hovering just above 2%pa, many pension scheme deficits will be looking rather unpleasant.

Since the beginning of 2014, yields have tumbled by over 1.5%pa – that could easily mean a 25% increase in the liabilities of a typical defined benefit (DB) pension scheme. Typical risk asset returns have been moderate at best – UK equities, for example have returned 1.2% over 2014. Some pension schemes may have been able to hedge some or all of their long-term interest rate risk – either by investing in bonds, or using ‘Liability Driven Investments’ (LDI) to match scheme assets with liabilities. But many schemes will not be completely hedged in this way, and will now be suffering from significantly increased deficits – on pretty much any calculation basis.

Looking forward, the prognosis is bleak. With the European Central Bank beginning its own Quantitative Easing programme, there doesn’t seem any immediate prospect of higher yields – indeed, some commentators, think that yields could fall still further.

What should DB scheme trustees do? Fortunately, most only need to get out of bed and worry about how to fund deficits every three years, so many may well pull the covers over their eyes and keep their fingers crossed that, by the time the next valuation comes around, the position is a little better. But those with valuations now are faced with the unpleasant prospect of asking sponsors for more cash. Some sponsors may be able to find a few extra pennies, whilst for others deficit funding may be driven primarily by affordability - in which case there’s probably no chance of extra cash no matter what the actuary says.

Of course, schemes that hedged their interest rate risk a few years ago will be feeling very smug indeed. But hindsight is a wonderful thing.

John Broome Saunders

Actuarial Director

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstone.co.uk

Leaving Service - What Happens Next to your pension?

In today’s workplace, the days of a job for life are long since over. Many people will change jobs ten to fifteen times during their working careers. Their workplace pension can become a casualty of these frequent changes, with pension arrangements being made and removed on leaving the employer.

Most of the UK’s leading pension providers follow a standardised process which ensures that the former employee retains their benefits and ceases the pension relationship between themselves and their former employer.

At the time of leaving service with their current employer, employees will receive a leaving service pack which will confirm their options and most likely include a direct debit instruction to continue contributing to their pension personally.

The pension plan is converted by the provider into an individualised arrangement, and once this change has been made both the employer and their engaged financial adviser, both cease any liability or obligation to provide assistance to the former employee.

Starting a new job will most likely result in an additional pension being set up for the employee by their new employer. The employee can then choose to transfer the existing plan into their new arrangement or continue with two (or more) plans. This can create administration issues both during employment and at retirement.

Employee awareness and understanding is therefore vital to this process and it is the responsibility of the employer to ensure that the employee knows what comes next.

Robert Simmons

Corporate Pensions Administrator

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstone.co.uk

The importance of a good payroll provider

With the changes in pensions legislation that have occurred over the last few years, the role of the payroll provider has changed in its importance to the company pension scheme. Before they enjoyed something of a backseat role, but now they have been thrust to the forefront of a company’s dealings with its pension provider.

Automatic enrolment has added extra layers of complexity into the process of assessing eligibility, managing the membership, data, and contribution payments for pension schemes.

As with any dealings with an individual or firm, you get out what you put in and with payroll providers it is no different. Employers who bring their payroll providers in to this process early, often find that the teething issues most pension schemes encounter can be greatly reduced.

However it is not just the employer’s responsibility to bring their payroll providers in on the pensions process, it is also the responsibility of the pension providers themselves.  For some it can be as simple as inclusion on regular conference calls, and for others far more specific inclusion and training is required.

Encouraging a greater awareness of the automatic enrolment process on the part of the payroll provider should be the overriding aim of both the employer and the pension provider respectively as auto enrolment becomes more established in workplace pensions.

Robert Simmons
Corporate Pensions Administrator

Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk

What’s the impact of longer working lives on an employer’s benefits scheme?



A recent YouGov poll for the Department for Work and Pensions (DWP) (the full results of which can be found here) showed that the main reason for continuing to work was ‘needing’ to earn money (31%). This statistic resonates with our work with employers. 

Since it has been unlawful to force people to retire unless there are objectively justifiable reasons for doing so (age discrimination), people continuing to work beyond traditional retirement age are becoming a primary consideration for businesses when it comes to succession planning and the provision of benefits.

The fact that nearly half (49%) of those polled now think that they will retire later than they thought they would goes to suggest that this issue is something that is likely to gain momentum.

The key questions from the employers we work with are: “how can our benefits package accommodate the diversity of our workforce?” and “how do we pay for it?”.

The cost of employee benefits can escalate (sometimes rapidly) as cover is provided beyond a traditional retirement age.  As a result, many employers utilise the exception to the principle of equal treatment on the grounds of age for group risk insured benefits, while other employers continue to fund ongoing insured benefits.

As the responsibility appears to continue to shift from government to employer, and then on to employees to fund benefits, it is likely that the use of flexible (and voluntary) benefits will continue to grow at a pace.

 
Whatever the future holds, making sure that employees fully understand and appreciate the benefits on offer is key to an employer’s staff reward and commercial success.

Robin Watkins

Risk & Flexible Benefits Consultant

Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk

The Declaration of Compliance Process - Important?

Employers who pass their assigned staging date to commence the automatic enrolment process need to be aware that their responsibilities do not end once they have finished automatically enrolling their employees.

The regulatory body (the Pension’s Regulator http://www.thepensionsregulator.gov.uk/) has a very specific mandate from central government to encourage employers to have an ongoing involvement and a visible engagement process after their automatic enrolment process has completed.

One specific arm of this mandate is the declaration of compliance process (DOC).

The DOC is a method by which the employer confirms that the scheme that it operates is fully compliant with the standards set out by the Pensions Regulatory body. Employers are required to complete this every three years, in tandem with their re-enrolment of those employees who were not automatically enrolled at the assigned date.

After the assigned date, there is a very small window for the employer to complete their DOC using the Pensions Regulator’s website and if the DOC is not completed in this time, then the regulatory body has jurisdiction to levy fines on defaulting employers.

An important part of this process is to educate employers as to the ongoing role of the Pensions Regulator, beyond the role that it plays in the run up to automatic enrolment.  The DOC remains an employer’s responsibility but it is the responsibility of every financial advisor to ensure that the employer is aware of what is required as part of this process and their ongoing role within it.

Robert Simmons

Corporate Pensions Administrator

Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk

The Importance of Good Employee Communication

With the changes in pension’s legislation, more employees than ever are being automatically enrolled into pension schemes with their respective employers.  Employees who are affected by this are often unaware of these changes and the potential benefits or implications of being involved in such a process.

There is a distinct knowledge gap between an employee’s idea of what their pension should be and the actual reality of the workplace pension that is offered. The engaged employer should be aware of this knowledge gap utilising many forms of media to engage with its employees.
Communications can take several forms from employee facing booklets to presentations made by product providers or financial planning consultants. With all of these methods it is important to keep in mind the three prime concerns of every employee: What do I have to contribute? What will I receive at my retirement? How much will I pay for this additional benefit?

Financial planning consultants can liaise with their clients to tailor the best delivery method to effectively engage with their employee demographic. Answering questions early and definitively provides a more stable grounding for employee engagement in the pensions process. There will always be issues which will be encountered over the employee’s time within the pension but the likelihood of the same queries and questions occurring can be decreased considerably by good employee communication and engagement.

Robert Simmons

Corporate Pensions Administrator

Telephone: +44 (0)20 7893 3456
Email: contactus [@] broadstone.co.uk