Adrian Boulding is Legal and General’s Pensions Strategy Director; Annie Hayes spoke to him about A-Day, the survival or otherwise of final salary schemes, the link between pensions and productivity and that big black hole.
HR Zone Q1: What impact has the recommendations of the Turner report had on employers and employees?
Boulding: Very little so far, as the implementation date is so far away. The Pensions Commission suggested a 2010 implementation, but if a big new State run National Pension Savings Scheme is to be created, I think 2012 is more likely.
HR Zone Q2: What is the relevance of A-day to HR professionals and workers?
Boulding: So many things are changing at A-Day, but one stands head and shoulders above the others. It is the new scope to make occasional, really large contributions. HR professionals should be encouraging this, with devices like "bonus sacrifice" and should be factoring it into severance pay negotiations.
HR Zone Q3: Will final salary schemes survive for much longer?
Boulding: The slow lingering death of final salary will probably continue, although a big stock market recovery which eliminated the deficits would probably see most firms close their schemes immediately, grateful of the opportunity to cut and run. The inescapable problem with final salary schemes is that they are now just too good! It doesn't make sense for employers to spend such a huge percentage of salaries on pension costs. More modest money purchase schemes are the way forward, coupled with the flexibility for those staff who want to pay more to do so.
HR Zone Q4: Can the psychological contract between employees and employers ever be repaired now that the pensions promise has all but disappeared?
Boulding: Yes, and surprisingly easily. Employers simply need to be quite clear with their employees what benefits they are offering. Then deliver the benefits and back them up with a clear communication programme to say, "You know what staff benefits we offer here, and we deliver our promises." But it can only be done if employers don't over-promise in the first place.
HR Zone Q5: Is there any link between pensions and productivity?
Boulding: A simple understandable pension package can play its part in the employer's "recruit, retain, motivate" strategy. If you hire good people in the first place, and keep them really fired up, then productivity will be high.
HR Zone Q6: Can confidence in pensions ever be-restored in young workers considering the torrent of bad press it has received since the £57 billion a year pensions black hole was exposed?
Boulding: Actually I think workers were guilty of over-confidence in the 80's and 90's, and I don't want to get back to that again. Today's pensions are not "sign up and forget it" type products. They require scheme members to take an active interest in both the quantity of contributions and where they are invested. Those who take that responsibility seriously will not be disappointed with the outcome, but those who ignore either of these might feel confident but will be in for a shock when retirement arrives.
HR Zone Q7: What's your pensions forecast for the future?
Boulding: We are heading for much more diverse outcomes in the future. Those who have paid in enough will still be able to enjoy a comfortable early retirement. Meanwhile others will have to work till they drop to maintain the living standards they aspire to.
HR Zone Q8: What rules should workers remember when looking at pensions provisions?
Boulding: The most important thing is to pay in enough in the first place. I have coined "Boulding's Law" for this. Quite simply it says that if you take the age at which you start contributing to a pension, divide that by two, then the answer is the percentage of your earnings that you should pay into your pension scheme. This is the percentage you should then pay for the rest of your career. So if you start at age 20, you only have to pay 10% of earnings in throughout your working life to get a good pension. This formula aims to provide a pension of two-thirds of final pay (including all state pensions.)