Most employees do not have a clue how to maximise income from their pensions:

• 70% of pensions professionals do not believe that Defined Contributions (DC) members achieve good outcomes at retirement.
• 80% believe that the average DC member does not understand their company pension scheme.
• 55% do not believe that DC members know where to go for advice.
• 95% believe DC members do not understand the income uplift available at retirement for certain health conditions – which can offer up to 40% extra retirement income.
• When prompted 85% of pensions professionals believed the reason why employees did not understand their DC schemes was a ‘lack of education about pensions in general’, 74% point to ‘apathy among members’ and 66% said ‘inertia among members’.
• However, only 20% of professionals say that decumulation is one of the tasks that they spend most time on (compared to 40% who say that administration is one of the tasks that they spend most time on). 43% saying that ‘decumulation’ is one of the tasks to which they devote least time.
• 83% of pensions professionals cite “access to good quality advice and guidance” as top success factor affecting quality of retirement income outcome among employees. With 73% listing ‘buying annuities smartly’ and 70% ‘shopping around’.

RESEARCH commissioned by annuity specialist Partnership reveals alarming concern among pensions professionals that employees in Defined Contribution (DC) schemes have little or no understanding of the issues.

The new data raises serious question marks over how the UK work force is preparing for retirement generally, and more specifically how ordinary workers comprehend the company pensions they are paying into.

When prompted during interviews, pensions professionals cited reasons why members do not understand their DC scheme: 85% believed ‘lack of education about pensions in general’, 74% point to ‘apathy among members’, and 66% said ‘inertia among members’.

80% believed the average DC member either does not understand their scheme very well or does not understand it at all, against 20% who feel they understand it ‘fairly well’. None feels that DC members understand their scheme ‘very well’.

70% of pensions professionals do not think that DC members achieve good outcomes at retirement.

“Inevitably there will be a significant change of culture as more company pensions schemes move from final salary (Defined Benefit) to money purchase schemes (Defined Contribution). This will progressively affect more and more people. This research shows the significant issues that pensions professionals must now grasp as a matter of urgency as they seek to meet their responsibilities to members at retirement, said Andrew Megson, Managing Director of Retirement at Partnership.

“One result is that the retirement decision is a lot more involved and it is quite clear from these pensions professionals that Trustees need to focus more in the process of retirement and to ensure that members are engaged and have appropriate access to guidance at the right time,” he added.

“If not, scheme members will suffer significantly reduced retirement incomes and, in particular, those who qualify for enhanced annuities for reasons of health and lifestyle – and who can typically benefit by increased retirement income of up to 40%.

“We must grasp this issue now. The good news is that there are many quick solutions which can help them now.

By concentrating resources on helping members improve decisions at retirement, improved retirement income benefits can be seen in a matter of months. This compares with investment income choices which can take up to 20 years to demonstrate positive results. This also enables pensions professionals to highlight the benefits of seeking retirement advice to employees and will help improve behaviours throughout the membership once they see the benefit that can be had.”

It is also important to be aware that technology can play a significant role in assisting employees with their retirement choices.

When interviewees were prompted on factors most affecting the quality of a DC outcome, the top success factor is revealed to be ‘access to good quality advice and guidance’ (83%). 73% say outcomes are most determined by ‘buying annuities smartly’ while a comparable proportion cite ‘shopping around’ (70%).

“There are services and systems such as those offered by Partnership that can help trustees and employees to improve the outcomes for their scheme members,” said Megson.

60% of professionals state that they spend the most time on ‘member communications’; 40% on ‘administration’. 35% on ‘investment choices’, and 20% on ‘decumulation’. A minority (10%) state ‘strategy / scheme types’.

In comparison, the areas to which professionals devote the least time includes ‘administration’ (50%), ‘contribution structures’ and ‘decumulation’ (43%).

When professionals were specifically asked whether certain changes could lead to a better retirement outcome for DC members, the following proportions said ‘yes’:

80% mention an ‘earlier wake-up call’, 68% ‘earlier information for members’, 63% ‘better information for members’. 50% advocated making the OMO (Open Market Option) the default setting.

In the quantitative research, nearly all interviewees (95%) think that DC members do not understand the income uplift available at retirement for certain health conditions. Only 5% believe they do.

– Ends –

Notes to Editors: Echo Research conducted the research from June – 12 August 2011. The research was conducted in 2 strands. The first part consisted of 7 quantitative interviews with leading pensions trustees, employee benefit and pensions consultancies, and pension scheme providers; and the second part took the form of structured interviews with 40 pensions professionals – four independent trustees, five consultancies and 31 corporates.

• Click here to view the full report

Jim Boyd, Director of Corporate Affairs
0797 345 8675 / 0845 108 7240
jim.boyd@partnership.co.uk

David Andrews, Senior Consultant - Director
07941 255855 / 01273 711567
DAM PR david@davidandrewsmedia.co.uk

About Partnership

Partnership is a specialist provider of financial solutions for people with health/ lifestyle conditions, as well as those suffering from a serious medical impairment. Partnership was the first company in the UK to offer higher retirement incomes by taking account of people’s health and lifestyle conditions. It has been a consistent innovator developing this sector by championing the needs of those with even modestly reduced life expectancies.

Partnership has led the way in providing products designed specifically for individuals whose health and lifestyle is likely to result in a reduced life expectancy. Partnership is expert in the field of medical underwriting and has a unique in-house data set. Partnership believes that its years of accumulated data and knowledge give it a unique understanding of the impact of health and lifestyle choices on longevity. This, in turn, enables it to offer the most accurate assessment of a client’s life expectancy and therefore offer the fairest price to them.

Partnership has a comprehensive offering in the retirement sector and offers a complete range of Enhanced Annuity solutions, from clients who smoke or have minor health impairments, through to serious conditions such as cancer. Partnership is the largest provider of annuities for Long Term Care funding in the UK, with 80% of the market, and also offers specialist Protection solutions for clients who have been declined cover from standard providers. Partnership offers a firm commitment to supporting advisers in growing their business.

Partnership was this year’s winner of the 'Long-term Care Provider' award at Health Insurance Awards and won this year’s Simply Biz ‘Annuity Provider of the Year’ award. It has been awarded a 5 Star rating at the prestigious Financial Adviser Service Awards, was judged “Best Enhanced Annuity Provider” at the Moneyfacts Awards and achieved an ‘eee-rating’ (the highest possible) for its web-based enhanced annuity platform in the e-Excellence Awards.