HR Matters March 2014

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HR Matters March 2014

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  • HR MATTERSIssue 03 | March 2014 | towerswatson.com

    Pensions revolution Performance management Employee engagement HR technology

  • 2 towerswatson.co.uk

  • 04 06Pensions revolution

    Employee surveying

    Will Aitken examines the impact of the tax provision for DC pensions.

    12HR transformationTim Richard gives some guidance on how companies can define their HR technology strategies and implement a successful transition.

    14High performanceYves Duhaldeborde investigates the trends in high-performance companies and talks about effective leadership.

    18Benefits health checkEdd Collins looks at creating fit for purpose benefit programmes.

    21Performance management Chris Charman examines the importance of performance management and how UK organisations differ in their approach to the subject.

    Steve Young reviews how business leaders should gather employee opinions.

    09Pension savingsThere is an increasing need for individuals to supplement their State pension. John Cockerton analyses what the future holds for pension savings.

    Contents

    HR MATTERS

  • 4 towerswatson.co.uk

    UK Budget tears up the pensions

    tax rules Major overhaul of tax provision for DC pensions

    Will Aitken Senior Consultant, Benefits

    And overnight, DC pensions have become a more attractive benefit, albeit with some possible strings attached around changing investment and providing guidance at retirement. Getting maximum value from them will mean communicating effectively.

    Alongside these changes to DC pension income delivery are consequential changes to the defined benefit (DB) pensions regime, a proposed increase in the normal minimum pension age and numerous other tinkerings.

    The annual and lifetime allowances remain in place, and from 6 April 2014, these will be 40,000 and 1,250,000 respectively.

    Changes to DC income delivery

    Annuities have rarely been out of the news of late, often portrayed as the latest financial services rip off and a potential barrier to building public trust in pensions. At the end of last year the Financial Services Consumer Panel reported on annuities, following which the Government had said that it is currently considering the broad range of research and evidence on decumulation and how the market is working.

    Clearly, it has given the matter a lot of thought

    Changes are being introduced in two stages, the first from 27 March 2014, the second from April 2015. The reason for the two-tier approach is that the more sweeping changes taking effect from the later date require changes to primary legislation.

    As is currently the case, 25% of the DC fund value within the lifetime allowance (LTA) will be available as a tax free lump sum. Any other amounts drawn will be taxable at the members marginal rate (an LTA charge on any amount in excess of the members available LTA would also apply).

    In the Budget delivered on 19 March 2014, the Chancellor announced sweeping changes to the rules for income delivery on defined contribution (DC) pension pots.

    2,000

    10,000to

    The small pot commutation threshold

    will increase from

  • HR Matters 5

    UK Budget tears up the pensions

    tax rules Major overhaul of tax provision for DC pensions

    From 27 March 2014:The minimum income requirement to be able to use flexible drawdown (under which there is no restriction on the amount of a DC pot that a member can withdraw) will reduce from 20,000 to 12,000.

    The capped annual withdrawal limit will increase from 120% of the equivalent annuity that could have been purchased to 150%.

    The trivial commutation limit (currently 18,000) will increase to 30,000.

    The small pot commutation threshold will increase from 2,000 to 10,000. Within the personal pension regime, small pot commutation may take place three times (rather than twice at present) again to 30,000 in total.

    From April 2015:There will be no withdrawal limits. From minimum pension age, an individual will be able to draw as much or as little (subject to marginal rate tax) as he or she wishes. In other words flexible drawdown will be extended to all DC pots. Annuities and other income delivery products such as drawdown will continue to be available.

    The Government is to consult on extending this flexibility, but its starting point is that it may remove the right of all members of DB schemes to transfer to a DC scheme. It also proposes to increase the minimum pension age to 57, from 2028, and to then maintain it 10 years below State pension age.

    This consultation runs to 11 June 2014.

    So what are the immediate implications?

    People who had planned to retire in the short term may now decide to stay on. They will need to be informed of what the changes might mean for them and how they might best take advantage of them. But it could mean that people who have already announced an intention to retire may change their minds.

    The annual and

    lifetime allowances

    remain in place,

    and from 6 April

    2014, these will

    be 40,000 and

    1,250,000

    respectively.

    Post-2015, we expect employees to focus greater attention on fund values rather than the amount of income that can be produced from the fund. That might mean some people will look at their fund value and conclude that they can afford to retire, whereas if they looked at the income their fund could generate, they might have reached a very different conclusion.

    For all employers with DC arrangements, there is a need to communicate with potentially affected employees to help them understand what the impact might be for them.

    Pensions revolution

  • 6 towerswatson.co.uk

    Capturing meaningful employee

    opinion data When to census, when to pulse, and when to listen

    Steve Young EMEA Practice Leader, Employee Surveys

    Todays business leaders are inundated with a vast ongoing flow of information. Technological advances allow us to track financial results, customer behaviour and operational performance on an up-to-the-minute basis.

    It is therefore only natural for leaders to expect that all business-relevant information including employee opinion should be gathered and reported on an equally frequent basis. But does that really make sense?

    The pitfalls of over-surveying

    The first issue to consider is how frequently the different types of employee opinions we are measuring are likely to change. Consider two questions commonly used to measure employee engagement: Do you believe strongly in the goals and objectives of this company? and Are you proud to be associated with this company? Responses to these questions are not likely to change on an hourly, daily, weekly or even monthly basis. The same is true for questions that measure aspects of organisational culture. Although responses to these questions may change and, we hope, improve over time, such change is noteworthy only if linked to a genuine change in the work environment. For example, opinions that change in response to a company initiative or difference in behaviour are more noteworthy than those attributed to the ups and downs of everyday life in a big company. Indeed, Towers Watsons experience suggests that a quarterly check of employee opinion is frequent enough, and even that is often too frequent.

    Measuring engagement and culture too frequently can lead one to over-interpret minor fluctuations, which may be nothing more than measurement

    error or a reflection of confusion among employees at being asked the same questions repeatedly without experiencing any true change.

    Some opinions require regular monitoring

    Are we to conclude that there is no value in measuring employee views on a more regular, ongoing basis? Not at all, but we need to focus on exactly what we are measuring and how often the views being measured truly change. For example, more organisations are now interested in measuring employee mood or overall sentiment as well as the kind of water cooler conversations that occur every day. Advances in technology and the prevalence of mobile devices make measuring these kinds of employee opinions easier and less intrusive than ever before. Although no clear link currently exists between employee mood or sentiment and organisational performance, it is plausible that over time, these sentiments may influence the more stable employee opinions that do reliably link to performance. Therefore, there may be value in having a continuous ongoing scan of this information as a possible leading indicator. This information can also provide valuable context to help inform more stable opinions such as employee engagement and organisational culture.

  • HR Matters 7

    Capturing meaningful employee

    opinion data When to census, when to pulse, and when to listen

    Another example of employee opinion that might be valuable to assess on a more frequent basis is employee reaction to a particular event or business issue (for example, a new product launch, recent acquisition or reorganisation), which by definition is time-limited. This type of assessment can send a strong signal that employee input is valued. Indeed, better decisions may ultimately be reached through this broader input. There is a broad range of tools that enable organisations to capture these kinds of opinions. Some of the most popular include:

    Social media analysis A regular culling of comments made on internal and external social media sites about the company and employees work experience

    Continuous polling An ongoing, always open, single-question poll rating ones current sentiment toward the company

    Qualitative pulsing An open