Business must work harder to communicate pension message

Irish business must work harder to communicate the pension message as many companies fail to successfully leverage their pension spend to positive effect - according to a new PricewaterhouseCoopers’ Pension Survey launched today comprising the views of 290 Irish employers representing some 200,000+ employees.

Communication matters
According to the survey there is a strong link between how pension information is communicated and the level of appreciation among employees, with direct implications for attracting and retaining key talent. The survey found that if employees understand the value of their pension arrangements they are twice as likely to significantly appreciate the company’s contribution, with direct implications for motivation and retention of employees. Where pension arrangements were actively discussed some 43% of companies felt there was significant appreciation, dropping to 9% for companies who had little discussion. Appreciation was also increased where membership and AVC contributions were actively encouraged.

Speaking at the survey launch, Alan Bigley, Pension Advisory Partner, PwC said:
“Irish employers contribute some €1.5 billion each year to fund pension schemes and pensions are an expensive element of the total reward package. However, our survey reveals that the pension benefits are often misunderstood and undervalued. There are clear costs attributable to poor communication and Irish business needs to target those areas of lost value.”

Risk
The key financial risks identified for pensions were, not surprisingly, investment underperformance (52%), change in pension regulation and inadequate pensions – with one third of employers with defined contribution arrangements having concerns over inadequate pensions. The regulatory and compliance area was the key non-financial risk (56%) identified. The good news is that, according to the survey, strong efforts are being made by Irish business to proactively identify and manage risk. For example, over half (55%) of the survey respondents said that all risk areas have been identified and mechanisms have been put in place to manage these.

Change
According to survey respondents, pension schemes are going through significant change with some three quarters (73%) of defined benefit schemes having gone through or expecting to undertake some level of change. Interestingly, nearly half (48%) of defined contribution schemes also have gone through or are expecting to undertake some level of change.

Alan Bigley continued:
“Pensions are an important part of the reward package and are becoming more important in the recruitment and retention of staff. Looking forward, we see organisations identifying that they do not want a ‘market solution’ but rather a solution that suits the specific objectives of their workforce and their organisation. Many companies are beginning to talk about possible radical changes to modernise their pension provision to fit in appropriately with the desired overall employment deal. ”

One third of companies said that they have made one-off or special payments to fund their defined benefit arrangement in the past three years. In addition, companies with these schemes expect no respite with contributions to these arrangements anticipated to increase in the coming three years (45% of respondents).

Executive Pensions
The importance of executive pension arrangements as a recruitment tool is increasing with a growing trend to provide additional flexibility. 40% of HR personnel identified that the pension scheme has become more important in attracting executive staff in the past 3 years.

A significant number of respondents were noted as having staff affected by the €5 million cap on pension benefits but more than a third of these have yet to take any action even though the cap was introduced 2 years ago.

Alan Bigley concluded:
“Increasing numbers of companies are looking at the overall wealth management opportunities for executives and pension planning forms a major part of this.”

Notes to the Editor

1. About the Survey
The survey was conducted in October/November 2007. It comprises the views of 290 Irish companies representing over 200,000 employees. The survey represents some 25% of the membership of occupational pension scheme in Ireland.

Survey respondents were split evenly between Indigenous and Multinational companies.

2. Survey Report
The survey report can be obtained from Johanna Dehaene on 086 810 6542 or    email: johanna.dehaene@ie.pwc.com

3. About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com/ie) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.