by Mike Jones, 18/04/2007
by Mike Jones, 03/04/2007
by Mike Jones, 22/03/2007
by Dick Nunn 08/03/2007
by Mike Jones, 24/02/2007
by Dick Nunn 28/01/2007
by Sara Jones 15/01/2007
by Mike Jones, 06/01/2007
by Mike Jones, 18/12/2006
And when I got there, the cupboard was bare...
The 'credit crunch' has really turned the screws on many household budgets and is exacerbated by increasing fuel costs. In the UK, the value of Stirling has reduced significantly against the Euro, making imports and holidays much more expensive.
Some commodities such as gold and copper are close to all time highs, with unprecedented demand being generated by the large developing countries of India and China.
Food bills have soared, and rice, a staple part of the diet in many countries, has recently reached a 19-year high, with wheat peaking at a 28-year high.*
Inflation is creeping up and house prices are falling.
Jobs are going in most main business sectors with haulage, construction and financial services particularly affected.
So, apart from the immediate effect of shrinking wallets at the end of the month what else is happening because of the 'credit crunch' that will affect significant amounts of the UK population?
Answer? A steady dismantling of decent retirement provision and an unwarranted expectation by individuals choosing to believe there is plenty of time left to sort out their pensions perhaps later this year: next year: sometimes: never.
Recent research by Fidelity International revealed that in the UK a worker on average salary (around £24,000 p.a.) would receive £215 per week at retirement including savings and pensions. That's a real reduction of over half of salary.
Imagine finishing work this Friday and your income was halved. Could you live on it?
In the US, some pension schemes permit hardship withdrawals under certain circumstances.**
UK pension legislation does not extend to allow similar withdrawals on this side of the pond and maybe that's not such a bad idea? However, it's probably one of the biggest gripes of the public at large that once paid, pension contributions are locked away until retirement.
There are some methods of releasing cash from pensions under very strict criteria, but that's another blog for another day.
These are difficult times, with no easy solutions.
*Food riots fear after rice price hits a high
**Retirement plans see spike in early withdrawals for everyday expenses
Stress in the workplace 3 - Mentoring and Assessing
Failure to communicate will ultimately prove very costly
I read a comment posted on a pensions website by a scheme member that had obviously lost out when his pension scheme wound-up. He stated: “…our pensions were safe and protected in law, weren’t they?”
The problem was, they never were, and are still not. The victims of pension scheme wind-ups were misled into thinking that their schemes were guaranteed. Compensation will be paid to many but it is very unlikely to match the expectations of all scheme members or their dependents.
However, this has fired a shot across the bow of pension scheme members who must now take the initiative to learn about their retirement provision.
In the UK, by far the biggest majority of pension schemes are very poor at pension education. Producing an annual statement or scheme booklet tells only part of a complicated story. However, skilful communications, delivered in a variety of formats, can help members and employees to plug gaps and weaknesses when these are identified.
It is particularly sad that people fail to learn about their pension schemes until the unexpected happens – when more often than not, it is too late to react. This is usually, but not always because of life changing events such as marriage, divorce, new child, redundancy, scheme closure or changing jobs.
In terms of moving forward, it has to be up to employers, trustees, advisers and scheme members alike to take part in working together to learn from mistakes made in the past.
Failure to do so will result in more claims when something else goes wrong in the future, as inevitably it will.
Mike Jones 27/03/2008
Stress in the workplace 2 - The Rise of the Machines
Stress can play a big factor in many ill health situations and stress-related problems for any company or pension scheme can be significant. Failure to spot stress at work can lead to reduced levels of competence and efficiency as well as to deteriorating relationships in the workplace.
If you are an employer, then holding periodical one-to-one mentoring sessions with your staff may be sufficient to identify stress hotspots in the workplace. Of course this will only achieve success if it is conducted by a trusted and respected member of the company or if you engage the services of an external organisation. If the employee feels intimidated or ill at ease because of a personality conflict with the mentor, the meeting is unlikely to be successful.
The true cost of stress-related problems to a company can be significant if it leads to sporadic attendance, accidents in the workplace, extended sick leave, early retirement or instigation of IDRP or tribunals.
All of these are financially costly to employers (and often pension schemes), government, taxpayers and of the course the individual that suffers the ill health.
If stress levels get as far as it has in this 30-second video, something has gone wrong. See:
- Annoying Colleague 2
Mike Jones 26/03/2008
Yesterday, in my first blog about Stress in the Workplace I pointed the finger (quite literally) at Annoying Colleagues.
However, in my experience it is often the tools of our trade that give rise to stress, or at the very least exacerbate existing stress levels. This can be anything from a niggling or constantly recurring problem with a machine or piece of equipment, to older technology which no longer matches the task that it was originally meant to perform.
How many times have you wanted to kick your computer, or throw the mouse or screen across the room?
Employers have a duty to ensure that equipment is up to the job. Meanwhile as employees, we have a moral duty to our colleagues, where we spot a potential stress situation to monitor, assist and report where necessary in order to avoid the situation boiling over.
Here is another short video which, whilst it might make you laugh, is actually anything but funny:
Stress in the workplace 1
Mike Jones 25/03/2008
Stress is a growing cause of concern in the workplace and if left unchecked or unmanaged can lead to ill health. Stress can and usually does affect us all at some time or another, although some people cope better than others do. Indeed some people thrive on stress.
In a recent report, it has been estimated that ill health costs the UK economy £100bn each year. That is a hefty bill to meet.
On a local level, failure to spot stress at work can lead not only to reduced levels of competence and efficiency but also to deteriorating relationships in the workplace.
Stress can be catching. It undoubtedly permeates back to home life and impacts upon our relationships with family and friends.
Here is a short video which, whilst it might make you laugh, is actually anything but funny:
It is up to us all to watch out for signs of stress in ourselves as well as in our colleagues and family.
Mike Jones 25/02/2008
Human longevity is a science on its own (he wrote while munching on a natural yoghurt).
Recent articles in the media have highlighted significant differences in living on one side of town to another, depending upon where you live.
In terms of defined benefit schemes, I'm surprised that employers/schemes don't engage the services of longevity specialists to define their own scheme membership longevity more precisely than the existing cohorts that are widely used.
As an example, an engineering foundry in the Midlands whose employees are 90% shop floor and most aged over 40, with the remaining 10% of employees being office staff is likely to have a different mortality makeup than say, a financial services company in Reading whose employees are mostly under 45s, wouldn't you agree?
For employers and schemes whose membership makeup is likely to mean lower life expectancy than the 'norm', this could present real savings in terms of past service deficit management as well as savings in both future funding requirements and regulatory fees.
I'm off to get my burger and chips now, with added salt and curry sauce...
10 reasons financial advisers need to hone their pensions knowledge
Mike Jones 12/02/2008
1. The National Pension Savings Scheme (NPSS) is coming and employers and employees will need advice. It is not going to be as simple as many expect - as is evidenced by the growing concerns about the effect that ‘means-testing’ has on retirement planning. True ‘pension analysis’ will become a full feature of many IFA practices and product providers.
2. Two thirds of final salary schemes (a type of defined benefit scheme) have closed their doors to new members and therefore all new employees need advice as to the suitability of any alternative pension arrangement that they are offered.
3. A significant number of final salary schemes have closed to all members – so even the existing employees have ceased to be active pension scheme members. There are many obvious and some subtle changes to pension benefits when an active member becomes a preserved member and these need communicating so that any ‘gaps’ which appear in an individual’s retirement planning may be considered. In this situation there is a preserved benefit to advise members upon as well as the merits of any replacement pension benefit to be considered.
4. There is a distinct possibility that average earnings schemes or ‘hybrid’ schemes (a mixture of defined benefit and money purchase schemes) will emerge as paternal employers begin to recognise that a money purchase pension, on its own, may not provide the full retirement solution. Attracting the best workforce and management teams may become harder where a firms competitor offers better pension provision. It is only very recently that any significant numbers of money purchase scheme members have reached retirement age and their disappointing cries have yet to appear in the media headlines.
5. Flexible retirement where employees reduce their working hours and take part of their pension. Complex and likely to become more popular - not least because of the number of employees reaching retirement age and not having enough to live one.
6. Age discrimination and pensions – an area that will grow in terms of litigation. Advisers need to be up to speed on this area of pensions law.
7. The growth of ‘specialist’ pension products such as SSAS, SIPPS, ASP and USP and the innovation they are bringing into the marketplace (and the possibility Regulators will turn their focus on these too).
8. A rising State Pension Age and improved life expectancy have important bearings upon clients’ retirement provisions.
9. New ‘At Retirement’ options are opening up. The annuities / flexible retirement market will continue to innovate and diversify.
10. Generic Financial Advice will mean greater public awareness of the true cost of failing to plan adequately for retirement, leading to a need for more ‘real advice’ by professional advisers.
In fairness to Actuaries…
Mike Jones 03/01/2008
In terms of their duties to pension schemes, actuaries perform their tasks at the behest of others (e.g. employers and trustees). It is therefore for employers, trustees and their advisers to ask pertinent questions when the actuary reports.
For example, when setting life expectancy assumptions, it would be prudent for employers and trustees to ask the reporting actuary to explain how he has arrived at his assumptions. How those assumptions compare to other schemes in comparable industries is equally important (is it wise to use similar assumptions for miners and office workers, foundry workers and nurses?), how they compare geographically, socially and financially.
All of these factors, and others, would be important questions in setting life expectancy assumptions for a scheme – but how many times are actuaries actually asked about these by the people who are paying them for their services?
I am not an actuary and I have nothing to gain in defending them but it seems to be popular, in some quarters, to criticise them at the moment.
Mike Jones 12/12/2007
I often see comments in the media from people criticising employers that took pension contribution holidays when their scheme was in surplus.
Not wishing to fan the flames of debate, but I’m intrigued to know what people think responsible sponsoring employers should have done with surpluses at that time and in that part of the economic cycle.
Taking a contribution holiday must have been an entirely appropriate solution for many employers especially when chunks of the surpluses were used by some schemes to provide discretionary increases to pensions in payment over and above any guaranteed increases that were already in place.
Others chose to use part of their surplus to make ‘catch’ up increases to pensions in payment, and in doing so wholly or partially offset the effects of inflation up to that point in time. Some employers worked with the scheme trustees to improve members’ benefits, such as improving or introducing spouse’s and dependants’ pensions.
Some schemes instead elected to use the surpluses to lock a higher proportion of scheme assets into bonds than normal, but these were in the minority (if my memory serves me correctly).
What sense would it have made to continue making employer contributions into a scheme so obviously in surplus?
The public has the very greatest sympathy for all members and their dependants that have suffered as a result of underfunded schemes that were wound-up.
But let us not forget that Government has taken its own pension contribution holiday for decades (in the form of the State Pension schemes) but nobody seems to mention that do they?
The real problem…is the disenfranchised?
by Mike Jones 07/12/2007
- Employees (whose salary-related scheme has closed to future accrual)
- Employers (that feel the pension scheme is now the tail wagging the dog)
- Pensioners (too proud because of means testing)
- Younger generation (looking at the mess that pensions are in now)
- Self-employed (too busy but too cash strapped to fund for retirement)
- Carers (whose retirement is threatened because they have brought up families)
- Actuaries (the world and his mother already knew we are living longer)
- Trustees (worries that the role may be becoming increasingly confrontational)
When I thought of the enfranchised, I’m afraid I only got as far as…
Grab the bull by the horns
by Mike Jones 18/04/2007
The whole issue of the growing lack of confidence in defined benefit schemes may have been caused by a number of factors. It certainly wasn’t just the removal of tax credits that Gordon Brown instigated in 1997 – but that action played a big part.
Several years of underperforming stock markets, increased life expectancy, excessive and burdensome legislation have all heaped the problem into the crisis that it is now.
What politicians and Government need to do immediately is to get the public’s confidence back to where it was 10 years ago. In those not too distant days, if you had a work-based pension scheme that paid a pension calculated in reference to your service and salary (a defined benefit scheme) your mind was at ease. You felt secure in that your retirement provision was ‘safe’. How times have changed.
The first step must be to secure benefits for those people that have suffered loss through their scheme winding up. The Government introduced the Pension Protection Fund (PPF) which protects members of ‘eligible’ schemes that have failed since April 2005. This goes a long way to shoring up confidence for existing scheme members – although the PPF is by no means the phoenix that many people believe it to be.
PPF compensation levels are capped for all members not fulfilling the 100% compensation criteria; it is not guaranteed; benefits don’t precisely match the failed scheme and levels of compensation and the amount of cap can be reduced in extreme circumstances. So even this lifeboat has an Achilles heel which let’s hope doesn’t get exposed.
For members whose scheme wound up or began winding up before 6th April 2005, the Government was dragged kicking and screaming into introducing another ‘lifeboat scheme’, the Financial Assistance Scheme (FAS). Unfortunately, the Government’s track record with this is nothing short of woeful. £9m spent on administration and only £3m paid out in benefits so far.
Impassioned cries from the tens of thousands of members not included in the original FAS acceptance criteria, because either they or their schemes didn't meet the qualifying criteria, have successfully lobbied for inclusion. It is now estimated that about 125,000 people will benefit from this scheme which has many limitations and is nowhere near as generous as the PPF.
So, we have a two tiered compensation scheme. A well managed PPF and a cobbled-together, patched-up FAS. Of all of the tough decisions to be made by Government, surely we can find the resources - not to mention the imagination - to make those victims of failed schemes all benefit from a level playing field. At least then we can begin to start the long haul to restore our defined benefit schemes back to being the envy of the world that they once were.
Getting the message across…
by Mike Jones, 03/04/2007
I was at a seminar recently with about 250 attendees in the room, mostly HR Directors and Managers. The day’s theme was Employee Rewards and Benefits and it was a real eye-opener in some respects.
One incident really stuck in my mind. There was an interactive session where the delegates could respond digitally to questions that appeared on the main presentation screen, using hand held devices.
When asked how well they thought that their company communicated to employees the value of the benefits which they provided (which included anything from pensions to bikes, healthcare, stress counselling – you name it), approximately 60% of the delegates thought they did this ‘well’ (as opposed to ‘not well’ or ‘don’t know’).
The next question asked delegates how well they thought their employees understood the ‘real value’ of the benefits which their employer provided. Approximately 40% thought their employees understood the value ‘well’ (as opposed to ‘not well’ or ‘don’t know’).
One perceptive woman in the audience then pointed out the anomaly. If less than half of the employees understood the real value of their employee benefits then clearly the communication that was getting through actually wasn’t that good (or perhaps just wasn’t working that well) – even though employers thought it was.
Food for thought…
by Mike Jones, 22/03/2007
I attended a conference in Westminster recently about Generic Financial Advice. The Government has announced its commitment to ‘financial inclusion’ so that everyone has access to affordable financial education. The belief here is that if consumers are better educated they will be in a better position to avoid the many pitfalls and pain that can crop up when it comes to dealing with their own finances.
I entirely agree with the principles, although I don’t think we should necessarily focus just on ‘minority groups’, which one or two conference delegates pointed out would be served most by a targeted financial education service.
Everyone deserves to have access to good financial education and advice.
Take scheme members. If you consider members of occupational pension schemes, I personally believe that the level of member knowledge about the benefits offered by their scheme is either poor or very poor. I say this from experience in dealing with individual members. Most individuals would struggle to tell you the basics about what’s provided and how their scheme works.
Few realise the impact that can occur of changing from being an active member to a preserved member, and when you consider how many schemes have closed in the last 5 years, there’s a lot of people in danger of getting a real shock at retirement. That’s not to mention the surprise some of their dependants may get if the scheme member dies and the death benefits have changed as a result of ceasing to be an active member of the scheme.
Scheme Booklets are okay as a starting point for information but employers and Trustees must look to a combination of tools and services to make sure their employees and members are pension literate. And it’s important that any provision is not just a one off ‘hit’. Pension schemes and legislation change. Members need to be continuously appraised if pension education is to have any lasting effect.
Trying to get meaningful information from some pension schemes when an adviser is performing pension analysis for a scheme member is often like trying to get the proverbial blood out of a stone.
The challenge for Government, having raised the issue, will be to ensure that financial education can be delivered to everyone, and that information is available on request, delivered in a timely manner and with minimal cost.
Promises which reduce pensions...
by Dick Nunn, 08/03/2007
We will look after you when you retire with a good final salary pension.
Does that mean I will get the benefit when I retire whatever happens to you?
You are entitled to this benefit and we will make sure the employer pays fully for your benefit.
The benefit is unaffordable in the event that the company goes bust.
I think you want a money purchase scheme.
Diminishing death benefits. A warning to all scheme leavers…
by Mike Jones, 24/02/2007
When I first started in financial service more than 20 years ago, I was presented with a list of power phrases. Several stuck in my memory such as:
“I never heard a widow say her husband
had too much life insurance…”
Another, much more cheesy phrase was:
“The greatest love letter a man can give his wife is a decent life insurance policy…”
I read recently that Winston Churchill was a great advocate of insurance and was apparently quoted as saying:
“If I had my way, I would write ‘insure’ over the door
of every house because I am convinced, for sacrifices that
are inconceivably small, families can be secured against
catastrophes which otherwise would smash them up forever.”
Most employer-sponsored pension schemes provide death benefits on the death of a scheme member – but what many people don’t realise is how drastically this can change in the event of the member leaving the scheme.
There are some real horror stories and I’ll dig some of these out and write a Factsheet about them in the next couple of months.
A typical example is a scheme that provides a lump sum of say, 4 x salary on death of an active member (ignoring spouse’s and dependents benefits). On leaving the scheme, the lump sum death benefit is reduced to a return of member contributions.
Someone on a salary of £50,000 would then expect to have a lump sum death benefit of £200,000 whilst an active member. Having left the scheme, the person becomes a preserved member the consequences of which could be that the lump sum death benefit reduces to a very modest sum such as £10,000 (depending upon how long the person was a member of the scheme).
Much more frightening is if the scheme was non-contributory, the lump sum death benefit on leaving would reduce to a big fat zero.
If your circumstances change and you cease to be an active member of your occupational pension scheme, then make sure one of the first things you do is to check out what death benefits are payable to your estate.
Make your financial advisers aware of this, as you may need to consider plugging any gap that may have appeared.