Stock markets have been volatile since the pandemic hit, causing concerns around pensions savings
The coronavirus has impacted not just pay but longer-term investments such as pensions. Naturally employees will have concerns over the health of their savings, so how can HR and reward teams engage with the workforce about their pension worries? Robert Cochran looks at some of the issues.
It is likely that in recent months, most people have experienced some degree of disruption to their working lives. For starters, you and your employees have probably been working remotely since the nationwide lockdown started in March.
Of course, there have been more significant changes too. Some employers have furloughed staff, while others could have reduced pay or even laid off workers.
The Covid-19 crisis has understandably created a lot of uncertainty and concern amongst staff looking to understand the impact on their finances, with pensions playing a central role in these considerations.
So how can HR address questions employees may have about their long-term savings?
Pandemic and pensions
Since the introduction of the Government’s Coronavirus Job Retention Scheme (CJRS), there have been a few question marks around how this affects workplace pensions.
There are two key points furloughed or reduced pay workers need to be aware of during this time. First, employees can still benefit from auto-enrolment and employer contributions. Under the CJRS, a minimum employer pension contribution of 3% is required.
Some people may see a change, however, if an employer does not make up the difference between salary and the government scheme.
The CJRS includes a payment to the employer for pension payments of 3% of qualifying earnings made to employees’ pensions, and the employee is still expected to make a minimum payment beyond this. So many on the furlough scheme will see a reduction in contributions to their plan. Some employers have decided to make up the difference and some have contracts which mean they must maintain the higher contribution.
Secondly, the scheme also covers national insurance (NI) contributions. This means employees can continue contributing to their NI credits without needing to take a break – this is important because people are required to make 35 years of qualifying NI contributions in order to get the full amount in their pension pot.
Given the situation we find ourselves in is so fast-moving, HMRC also regularly updates its website with all the latest guidance on the CJRS.
You should be aware that changes are due to take place from today (1 July, 2020). Scottish Widows have also been working with the government and Regulators to determine whether any change to current industry practice is required.
Recent market volatility has been another area of concern. The investment market took a big hit due to lockdown, much of that fall has been recovered but pension values are bouncing about as stock markets react to the latest bit of news on the virus so it is a natural reaction to be worried or uncertain about what to do.
One of the most frequently asked questions is about how to respond to worried employees wanting to make changes to their pensions.
While it can be tempting at a time like this to stop saving into a pension or lowering contributions to deal with short-term priorities, it should be done only if other options are exhausted.
For starters, pensions by their very nature should be seen as long-term investments. Short-term ups and downs are to be expected and one’s retirement fund should have the time to ride out the peaks and troughs in the stock market.
Contributing to a pension now will also make a significant difference in the long run because of compound interest.
Imagine this – to reach a retirement income of £18,000, a 25-year-old would need to put away £182 each month, £239 if they started at 35, and by the age of 45 this leaps to £450.
Even six months of additional contributions can make a difference, so it is important employees understand the value of long-term investments even during periods of uncertainty.
Workplace pensions can be complex, and even more so in the current climate. There are many tools available to support you in helping your employees plan for their retirement, either through your pension provider or government-regulated bodies such as Pension Wise, the Pensions Advisory Service or the Money Advice Service.
HR professionals may sometimes be approached with more technical questions, such as ‘should I move my pension or investment into a lower risk fund?’.
While this is someone’s natural first instinct, people need to consider that these funds generally have a lower potential for growth long term.
Selling an investment when the markets are low can also potentially result in you locking in a loss.”
Selling an investment when the markets are low can also potentially result in you locking in a loss. It can be compared to selling a house: if you sell when the prices are low, not only might you get less, but you might also pay more for a new one if the prices go up.
Unfortunately, there is also mounting concern over pension scams. This type of fraudulent activity is on the rise because scammers use the uncertainty from the coronavirus to take advantage of people.
There are some clear tell-tale signs to communicate with your staff to avoid the possibility of losing lifelong savings – such as being contacted out of the blue, being asked to carry out ‘urgent’ actions or investment opportunities that sound ‘too good to be true’.
Get ahead of this by sharing internal communications with your staff and reaching out to the regulatory bodies listed above if you believe your firm is being targeted.
Reward, compensation and benefits opportunities