The two-pot system is the latest milestone in retirement reforms that have taken place over the last decade. This new system is an exciting and significant enhancement to our retirement fund system. The two-pot system will increase retirement savings over the longer term and assist members in managing their more urgent financial needs.
Although there is a lot to look forward to, the impending two-pot changes may be causing uncertainty.
Trustees might be concerned about whether their fund is adequately prepared to implement the new two-pot system. Trustees might wonder how to effectively communicate the two-pot changes to members and address their concerns. Trustees might even be thinking about how the two-pot system will affect their fund’s administrative processes and operational efficiency.
As trustees, it is imperative to understand the implications of this change and what to expect from service providers to ensure a smooth transition for their funds and members.
Proactive engagement and communication
Effective communication is the cornerstone of the two-pot system’s successful implementation. Our research shows that seven out of 10 trustees say their members won’t understand how the two-pot system will affect them. Service providers should proactively prepare for the two-pot system, establishing clear operational frameworks and communication strategies. They must be adept at conveying the nuances of the two-pot system to members, addressing concerns and fostering a direct connection that enhances the member experience.
Digitalisation and administrative efficiency
Keeping up with the potential wave of member claims during this change can be overwhelming for HR leaders and payroll professionals. The digital transformation of claims and engagement processes is crucial in helping to ease the burden. Trustees should look for service providers that offer robust digital platforms, like dedicated online portals, to facilitate efficient member interactions, especially concerning withdrawals from their savings pot. These platforms should empower members to manage their claims independently in a secure, user-friendly and accessible manner, thereby reducing the administrative burden of funds.
Transparent cost management
Implementing the two-pot system requires significant changes to existing administrative processes, including system upgrades, staff training and the development of new digital tools and technology to preserve existing member experiences. However, such changes will come at a cost. Service providers may need to adjust their fee structures to reflect the additional resources and efforts required to maintain a high level of service under the two-pot system. Trustees must work closely with service providers to understand the rationale behind fee adjustments and ensure they are communicated transparently to members. Members must be aware of any changes to the fees they pay and the services they receive. Moreover, service providers must balance the need to cover the costs of implementing the two-pot system with providing value for money to members. This balance is critical to maintaining the trust and confidence of members in the retirement fund system.
Communication and education
Access to accurate and supportive information is more important than ever under the two-pot system. Naturally, members will have many questions surrounding this new regime and how it might affect them. Trustees should ensure that service providers are able to provide members with easy access to up-to-date information through dedicated web pages, online portals and other digital resources. Powerful member engagement tools should be designed with members’ needs in mind, equipping them with useful and meaningful information on the two-pot system and keeping them up to speed with relevant and accurate developments on the two-pot system.
Comprehensive member support
The transition to a two-pot system is a significant change for retirement fund members, and it is essential that they have access to expert guidance and counselling.
Our research shows that 6 out of 10 trustees believe the new two-pot system will drive the need for continuous member engagement even more. Service providers should offer easy access to personalised advice to help members understand the implications of the two-pot system on their retirement savings and immediate financial needs.
This support should be provided by qualified counsellors and advisers who are up-to-date with the latest changes and can offer tailored advice based on individual member circumstances. The purpose of financial advice is to ensure that members make informed decisions, providing them with the best chance of making good financial choices that are right for them.
Investment portfolio management
Diversification and liquidity management are key aspects to consider, ensuring that the fund’s investments can withstand the pressure of withdrawal requests without compromising long term goals. Trustees must ensure that service providers have a well-thought-out strategy for managing portfolio liquidity in light of potential member withdrawals. Trustees should be engaging service providers around stress testing and gauge to what extent a fund’s liquidity and investment portfolios might respond to various simulated withdrawal scenarios. Understanding stress testing outcomes will allow trustees to manage expectations confidently, knowing that the necessary precautions have been taken to safeguard the fund’s liquidity. This proactive measure ensures that the fund remains resilient, even as members begin to utilise the flexibility offered by the two-pot system.
Maximising financial resources with smart solutions
While the two-pot system allows members to access some cash from their savings pot before
retirement while still working, it is recommended that they be encouraged to keep their retirement savings invested for retirement whenever possible. This approach provides them with the best chance of having enough to live on when they stop working. Rather than using their retirement savings for emergencies, unexpected expenses or to keep up with essential needs, trustees should explore what solutions are within a service provider’s toolkit to help members manage their day-to-day finances effectively. Solutions could include discount programs such as cashback offers, and rewards points that can be redeemed for goods and services. Other solutions that can be effective in helping members manage their finances better and reduce their financial stress are debt consolidation, financial assessments and credit score reviews. Collectively, such solutions can go a long way in helping members make the most of their money and improve their financial positions.
In conclusion, the two-pot system presents a transformative approach to retirement savings, offering members a structured yet the flexible way to address their immediate financial needs while securing their long term financial future. A trustee’s duty is to ensure that their partnered service providers are equipped to support members through this transition with comprehensive tools, resources and expert guidance. By fostering an environment of informed decision-making, retirement funds can better position themselves to proactively empower members to make smart choices that will benefit them in the long run. With the right support and resources, trustees can help members navigate the two-pot system with confidence and control, ensuring a stable financial foundation for growth and financial wellness.