When U.K.-based Sainsbury’s had to modify its pension, positioning the changes properly to 161,000 employees was critical.
At Benefits Canada’s DC Plan Summit in Lake Louise on Thursday, Wendy Davis, the retailer’s pension compliance and communications manager, said talking about pensions to employees was difficult. “Can you have ‘pensions’ and ‘exciting’ in the same sentence?” she joked. But it’s particularly challenging given the diversity of the company’s workforce, with employees ages 17 to 80 and ranging from part-time workers to true “careerists.”
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In 2002, Sainsbury’s initiated a “soft close” of its DB plan (closing it to new entrants) and entered the DC space. Closure of the DB plan was a blow to the existing 15,000 long-serving employees—particularly since the plan’s early retirement rules also changed. “Taking that away was very emotive…people in their 30s were expecting to retire in 10 years with no [benefit] reduction,” Davis explained. (The plan for new employees is a stakeholder plan, meaning members have individual contracts with the pension provider.)
Then, the U.K. government announced it would be phasing in mandatory auto-enrollment starting in October 2012. As a large retailer, Sainsbury’s was among the first to have to implement it. “All of our partners in the U.K. were committed to auto-enrollment,” said Davis. But it wasn’t without its challenges.
As one of the first to go live with auto-enrollment, “we’ve got massive PR risk; we’re in full view of the rest of the country,” Davis explained. Plus, she said, the regulations were “horrific” in their complexity. And even though there was a lot of activity around auto-enrollment at a high level, “most people still had no interest in pensions.”
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To communicate auto-enrollment was coming, Sainsbury’s published articles in its in-house magazine and included information in its weekly huddle (a regular internal meeting to find out how the company did the previous week in terms of budget and profit). It was particularly important to communicate to employees that they have to join the plan, but they don’t have to stay in it if they don’t want to, said Davis.
The expected average opt-out rate was 25%. But at Sainsbury’s, only 7% actually opted out, and very few employees voiced concerns. “Auto-enrollment does work,” she added.
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Sainsbury’s is planning to make further pension changes in the near term, including looking closely at the decumulation options available. It’s also looking to change its default options so the lifestyle funds will remain low-volatility growth funds instead of investing in bonds and cash. And because it’s been three years since Sainsbury’s has auto-enrolled its workforce, by law, it has to undertake a re-enrollment for employees who’ve opted out.
Davis believes there’s a “pension revolution” coming to the U.K. Right now, the auto-enrollment contribution requirements are minimal, but she expects they will increase. And the growing complexity of pensions also requires greater governance, she added. “It will be more complex, but we have to make it simpler.”
Additional coverage of the DC Plan Summit will be in the April issue of Benefits Canada.
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