I remember listening with growing annoyance to a corporate benefits director some years ago arguing that the move away from defined benefits (DB) pension plans was a good thing, that employees needed to take full responsibility for their own financial affairs and that employers should focus instead on just paying ‘clean cash’.
Fortunately, he seems to be being proved mostly wrong. Though DB plans are indeed becoming a dying breed in these tough economic times because of their costs, the world of pensions is not a simple one, even for those of us with some knowledge of it. And employers leave their employees to navigate that complexity at their peril.
At an excellent Pensions Policy Institute seminar last week, the PPI’s research director Chris Curry explained how the forthcoming removal of the requirement to start paying out pension savings by age 75 could affect 25 per cent of the population aged between 55 and 75 years with money purchase pensions savings.
Age UK’s programme manager, private sector policy, Jane Vass highlighted that, as with defined contributions pensions, there is a significant risk that people will make the wrong choices in a “market soured by poor products and inappropriate selling”, and, essentially, run out of pension. Having growing numbers of employees who can’t afford to retire, and increased levels of pensioner poverty in society, is not in the interests of any UK business.
In a fascinating Harvard Business Review (HBR) article, professor ‘business strategy’ himself, Michael Porter recently argued that the recession has shown the poverty of a narrow, shareholder-obsessed model of capitalism. He makes the case instead for ‘shared value’: that is “creating economic value in a way that also creates value for society, reconnecting company success with social progress”. In a related blog, HBR contributing editor John Landry explains that this means that employers will “also need to be more paternalistic, taking a broader interest in their economic environment and doing more to build up their workers”.
To an extent employers have no choice in this with the impending introduction from 2012 of NEST, which will require all businesses to contribute towards the pensions of those staff who are paying into a fund. The Government clearly feels employers have to play their part in society.
But smart employers don’t need to be forced. A survey out last week showed that introducing new and improved employee benefits was one of the priority areas for HR activity in the year ahead. Look at those firms at the top of the Sunday Times and similar best-place-to work-listings: they are characterised not by cash-only packages, but by excellent rewards and benefits. Those companies are seeking to create an environment in which people can feel secure and, where they wish, and are able, to contribute to the firm’s success.
Eighty years ago on his English Journey, even the playwright JB Priestly couldn’t help but be impressed by the Cadbury factory at Bourneville: “magnificent recreation grounds, with continuation schools, medical attention, with works councils, with pensions… here in a factory run for private profit are what progressive people all over the world are demanding for humanity”. Priestley concluded that for employer, employees and their society “here is definite and enormous gain”.
Today we don’t call these policies and their outcomes ‘paternalism’. We call them total rewards and engagement.
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Paternalism revisited – creating shared value
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