Financial education in the workplace could help members to gain double tax relief on their occupational pensions, claims JPMorgan Invest.
Speaking at the National Association of Pensions Funds (NAPF) Annual Conference, David Cassidy, chief executive of JPMorgan Invest, says since A-Day the rule of concurrency allows people to join up their pension planning and if they have access to the right information could benefit from more tax relief.
He says the government is currently offering the most attractive set of tax relief incentives for pensions in living memory, but they are being under utilised through a lack of understanding, a lack of joined up planning and a lack of financial education.
Cassidy points out since A-Day it is possible for members to join up shared income plans (SIP) or save as you earn (SAYE) plans, where they are available, with a defined contribution (DC) or defined benefit (DB) pension.
He says the schemes can be worth immensely more joined up than by entering them individually as the savings going into a SIP or SAYE will earn tax relief, and then if the amount is then moved into a DB or DC pension scheme it will automatically receive a second set of tax relief.
Cassidy says: “While this could require changes to the rules of current pension scheme, a SIP or SAYE can be put into a Self Invested Personal Pension (Sipp) wrapper which can then sit alongside a DB or DC scheme. All the ingredients are in place, people just have to get out there and understand how it can be linked together in a joined up fashion.”
But he says financial education in the workplace will also have to change and make a distinction between information, which is passive, rarely understood and far from adequate, and education which is proactive, ongoing and makes the most of the benefits offered by employers.
Cassidy points out it is all very well to have great pension schemes and great literature to tell you about the scheme, but if people don’t have the money to invest in a pension it is not going to matter.
At the moment things are the wrong way round, says Cassidy, where schemes are spending more on information which presupposes people have the money to invest in schemes than on telling employees how to find the money to invest in the first place.
As a result he says education needs an approach which is life stage event driven to cater for the needs of all workers, from new entrants who have a lot of debt to those in mid-life who have the opportunity to join up schemes for turbo-charging.
But he says employers need to co-ordinate their offerings and provide a holistic information service which doesn’t just concentrate on pension saving, while providing a central platform for education rather than separating it up to different departments such as human resources, or marketing where different people have different ideas leads to more confusion.
Cassidy also points out the £150 employers available to employers for each employee per year for pension advice from the Pension Education Fund is underutilised, on the basis it can only be used for pensions.
He argues: “It’s a question whether it should be just used for pensions, as how under the terms of ‘Best Advice’ and 'Treating Customers Fairly', can you talk about pensions without mentioning pension simplification. Therefore you need to embrace all other connected areas such as the ability to use childcare vouchers and other employee benefits as a way of making pension contributions.”
Meanwhile, a spokeswoman from the Department for Work and Pensions (DWP) also taking part in the discussion, admitted financial education has to be broader, although she says the DWP does not have a specific remit to deliver education as they don’t have the funding for it.
Although she says the DWP is currently working with the Financial Services Authority (FSA) on a series of workplace pilots to see what lessons are being learned, adding as it is looking towards developing personal accounts it is important for people to understand what they are, and so it is exploring and researching possible answers.
But Joanne Segars, director of policy at the NAPF, says: “People don’t want commercially branded providers or IFAs to do generic information presentations as it feels like they are being flogged something, so we need to find out what they want and what workers will trust.”
Cassidy suggests education in the workplace is not actually an IFA issue, as it is more about people understanding what is available and employers offering platforms to give people the opportunity to take advantage of the information.
But he says: “If people are offered proper generic advice and information without the platforms to execute that education, then they may as well not bother. There has to be a system of joining up benefits as well as increased education and understanding for people to be encouraged to save more.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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