Communications can always be improved, but Royal Mail says it plans to keep staff informed of changes
Royal Mail doesn’t currently suggest to members that they consider income drawdown as an alternative to an annuity purchase, but since the 2014 Budget, this and other changes are now all suddenly on the agenda – and that means member communications has never been so important.
“The default fund is now under review,” says Ben Piggott, Royal Mail’s plan secretary. “It’s mainly the de-risking element that we’re looking at,” he adds.
“Currently we’re set up for annuities, but the Budget has put this up in the air a bit. Because the scheme was only set up in 2009, most people’s pots will be very small for the foreseeable time.
“My thinking is that de-risking for cash for the next ten years is not a great idea. Annuities really aren’t good value for money, but they may still be a prudent decision for members.”
The good news for members though, is that Royal Mail hasn’t been standing still. Today the pension structure stands at a three-tiered contribution level: 4% employee with 7% from the employer; 5% employee and 6% employer; and 6% employee and 9% employer. The top tier was only added on 1st June this year, and as the word spreads about it, Piggott says the new level will soon start to sell itself.
“There’s been fantastic support from the business to add this extra top tier,” says Piggott. “It really shows that the company is serious about pensions provision. The more staff see others having it, the more we hope they’ll up their contributions too.”
Around 17,000 extra members were created through pensions auto-enrolment and all told, 95% of staff do go straight to the default fund. Piggott says this is reflective of the trust members have in the default fund (because it automatically de-risks for members), although he accepts this is also just as likely to be down to low-engagement with pensions.
As result of this, Piggott would like to find out how people actually make their decision for which fund to go with, because there are a small percentage that actually operate outside this default. “Hopefully, some research we’re planning will provide us some answers to this,” he says.
Even though the vast majority of members are in the default fund Piggott says Royal Mail will shortly add in some other fund types – most likely in the autumn. “These will include an active global fund and an active emerging market fund – just to give members choice,” he says. “As a rule we don’t believe members need a huge range of fund types to play out the investment choices they want to make. So, for this reason we are keeping the number of new choices down, but what we’re saying is that there is more choice for those who know what they want.”
To make sure the right fund choices have been made, Royal Mail does quarterly investment reports, including providing data on values, performance after fees, and seeing broadly if everything is within expectations. “There will be some analysis of actively managed funds, to check whether trends are moving too much high-risk, but in the main, the focus is the default,” says Piggott.
On the communications front, he says there is room for improvement. “We want to look more at awareness and engagement in the future,” he says.
“I’m not so much into communications being an educational device. To me, it’s more important that people are aware of their pensions, and whether it will meet their future lifestyle wants. You always worry about whether people are contributing enough to meet this.”
2009 The year the scheme was set up
95% The percentage of the workforce that are invested in the default fund
40 The average age of the membership
This article first appeared in Pensions Insight’s annual research report, DC Pension Plans: An Analysis, in association with J.P. Morgan Asset Management.