Rethinking Retirement: Assessing the need for employee wealth creation
26 April 2007
In late 2005, PARC commenced what is intended to be a longer term research study on the changing nature of retirement provision in the UK. This had originally been triggered by the 'pensions crisis' of recent years. The first step was the commissioning of the report 'After the Perfect Storm: Rethinking Retirement following the Pensions Crisis', which was reviewed and discussed at a members' meeting in April of 2006.
Subsequent to this first stage, there were further discussions involving PARC members to review how to take this issue forward. It became clear that the challenge is much broader than the current public debate might suggest. There seems to have been a focus upon the specifics of retirement age and funding mechanisms; these aspects are of course crucial, but they do not represent any kind of fundamental solution to what members see as a wide range of issues. It was clear that developing social trends, employment and career practices carry further profound implications.
In this new world, it seems that:
- the state cannot (or will not) take on the role of principal provider for all;
- employers find it increasingly hard to be responsible for the provision of a traditional core definedbenefit plan for all kinds of employees;
- given the above, and particularly when the changing nature of work and career patterns are factored in, it seems inevitable that individuals themselves will need to assume much greater involvement, if not responsibility (and thereby choice), for the provision of retirement income.
It seems that the barrier we need to break through is the traditional concept of the 'pension plan'. What is needed is essentially a pool of 'wealth' which will be able to fund income during the years of changing and/or declining work activity and into partial or full retirement. In other words, a shift from a pension promise to the provision of a fund for 'retirement benefit'.
A pension plan is essentially a form of wealth creation, and we have already made the point that some traditional approaches to this are no longer sustainable. So the challenge appears to be how to supplement or replace this in other appropriate and flexible ways.
Some of these other ways of wealth creation are already in practice in a large number of employers; these include:
- employee share plans and other savings plans;
- employer-provided loan plans and other financial devices.
So the idea emerging is the possibility of creating a portfolio of wealth creation devices which could be brought together by employers in ways which meet the needs of their employee profile and which enable employer and employee to achieve more value from the respective expenditure or contribution.
This became the focus of the PARC research.
We continue to explore this subject in our 2008 Programme, with a workshop examining the subject of Employee Wealth Creation.
We took the view that this research work should ideally generate practical outputs in two key areas:
- practical tools and 'mechanics' for employers and employees to make and manage their decisions;
- governance and support systems for the new structures to work effectively.
In the first category we saw the need to examine:
- the nature and method of wealth build-up through company-sponsored vehicles and the possible range of approaches;
- specific retirement wealth planning options;
- total reward strategy options.
In the second category:
- development of financial literacy amongst employees to equip them to make choices;
- development of effective partnering between HR and finance.
Each of the above represents a specific 'strand' of work beneath an umbrella of overall research and project control.
Contributors and sources:
This work involved a wide range of contributors both internal and external to PARC. PARC project leaders and facilitators included Richie Furlong and David Lincoln. PARC members contributing to the research included:
- Chris Johnson (Cabinet Office)
- Paul Jackson (HSBC)
- Kathy Foster (Nortel)
- Ian Pitcher (T Mobile)
In addition, a number of consultants and other specialists agreed to contribute to the study.
Timeframe and key events:
We envisaged an on-going process of research and development, with outputs and small informal meetings and materials produced according to the strand of work.
This is an important and fundamental piece of research in which all organisations should be interested.