HR pensions spotlight: cost of living and pensions – how can you support your employees?

With inflation and living costs at record levels, some employees might look at reducing or stopping their pension contributions in order to increase their take home pay. Those aged 55 or over might be looking at topping up their income by dipping into defined contribution (DC) pension pots or transferring their savings to another scheme to access them. How can employers best support their employees and protect them from scammers during this time to help their retirement plans stay on track?

The seven-step plan

We suggest this seven-step plan for reviewing your pensions and financial well-being offering and its strategic objectives.

1. Review the pensions support you provide

The starting point is to review what support is currently available to employees to help them make informed choices.

Has your provider issued any specific communications or offered any other support to members in relation to the current investment climate, rising living costs or pension scams? More generally, does your workplace pension provider offer accessible resources and webinars aimed at different cohorts of member? Do you effectively signpost these resources and events in the workplace and encourage attendance? Remember that support and engagement will also help your employees to better understand the value and importance of the pension benefits you offer.

2. Ask whether this support addresses the employees' needs

As a general point, do you monitor take up of your provider's resources or support from among your employees? Is support getting through to those who need or want it and is it sufficiently targeted?

In terms of support that might be helpful at this time, find out what questions your pension provider and HR team are receiving regarding pension contributions or access and whether they have increased in number recently. For example, has there been an increase in opt-outs or requests to reduce employee contributions ? Are older employees asking about their options for accessing their DC pension or about transferring their benefits? Has your provider seen an increase in suspected scam cases? What needs do the answers to these questions suggest?

If you are unsure, consider asking employees what support they would find helpful.

3. Decide what action to take

Topics it might be helpful to cover include the impact on retirement income of stopping, suspending or reducing contributions, points relating to default funds, support for pension savers when investment markets are volatile (to help prevent rash decisions, including how they can access free and impartial guidance) and support for those considering accessing or transferring their pensions, in particular risks relating to pension 'scams' and the Money Purchase Annual Allowance (MPAA).

Broadly, the MPAA applies where an employee aged 55 or over takes cash from a DC pension that is not tax-free cash; it operates to reduce the employee's annual allowance to £4,000 per year, rather than the standard £40,000. This could be disastrous for someone with years until retirement who is hoping to contribute more at a later stage.

You may be able to arrange for your pension provider or a third party to provide this and other pensions information online or at a drop-in session.

You could ask your pension provider when they will issue annual benefit statements and what information will be sent with or before these.

You could also think about when your flexible benefits window is and whether you can target support or make changes in advance of that.

4. Consider pension contributions

Does your pension contribution structure offer flexibility over the employee contribution payable (allowing for temporary reductions, subject to automatic enrolment minimums), or is it "one size fits all"?

If you want to make changes to the pension contributions structure to help to support employees, you should take advice on the contractual and automatic enrolment implications. Could there be justification for an employer contribution only option; for example, for those who feel they need to opt out of the automatic enrolment scheme?

Are you taking advantage of salary sacrifice to increase the employee and employer benefits of pension saving? The employer savings from salary sacrifice could be used to boost employees' pension savings or to fund a review of your pensions offering and pay for any changes you wish to make. If not, are the employees in the higher rate tax band aware that they may be able to reclaim tax on their contributions from HMRC?

5. Remember death in service benefits

In some cases, employees need to contribute to the pension scheme to be covered for death in service benefit, meaning that those who opt out of the pension cease to be covered.

If this applies in your case, are you comfortable with this and do the employees understand this? It is now very common for pensions and death in service cover to be provided by separate arrangements and group death in service schemes are straightforward to set up.

There are two forms of death in service scheme. (If you would like to learn more about these and the trust documentation that would be required, please contact us for our Death in Service Guide.)

6. Consider financial well-being more generally

You could also consider introducing a financial well-being package which goes beyond pensions and includes financial education more generally. This could include a "work save" arrangement to help employees build a "rainy day" fund, promote financial resilience and preserve their pension saving.

7. Schedule ongoing review

Once you have reviewed your pensions and financial well-being strategy and made any appropriate changes, we would suggest you undertake a periodic review to make sure it continues to be fit for purpose, valued by your employees and good value compared to other market offerings.