ANALYSIS: Comms is key to pension shake-up

As a growing tide of companies make controversial changes to their employee pension schemes, PROs and internal comms staff face a challenge communicating the shifts to staff and media alike, says Andy Allen.

An increasing number of UK corporations are adding their names to the list of those closing their salary-based pension plan to new staff. Marks & Spencer joined their ranks last week in a move that reignited the often fractious press debate on how Britain should pay for its rising pensions burden.

M&S follows companies such as Abbey National, BT, Ernst & Young and Iceland. Even the Church of England is reported to be considering a similar step.

There is an information gap for communicators to fill. According to NOP research conducted exclusively for PRWeek, less than half the UK's working population feel well informed about the changes being made to pension provision. And most tellingly for internal comms staff, only 35 per cent of those questioned named employers as the primary source of information on changes to their pension deals - almost as many name the media as the main information source.

While nearly all company PROs insist they are satisfied with the coverage they have received on this issue, the shift to defined contribution schemes has received a mixed press and has been interpreted in some quarters as disguised cost-cutting.

Where many existing pensions mean employees enjoy a pension based on final salary and length of service, defined contribution plans - also known as money purchase schemes - shift the burden of risk onto employees.

Experts at accountancy firm KPMG have said the pension from a defined contribution plan is likely to be 30 per cent down. But firms that have made the switch say they are simply facing modern financial realities.

The tone of coverage was summed up by Amicus, the trade union leading the charge against firms closing their final salary schemes. It called for legislation 'to stem the poisonous tide of this pensions massacre.'

Ernst & Young head of media relations Kevin Russell says the firm's principal task upon announcing the changes was to explain to staff that the switch for new employees and some existing staff was principally due to a need for risk management.

Russell cites improvements in life expectancy, low interest rates, low equity returns and the 1997 abolition of certain tax credits as factors that reduce investment returns and require companies to make extra pensions spending. In Ernst & Young's case, the growth of salaries in the financial services sector has also been a factor in pushing up pensions costs.

'This was first and foremost an internal comms task,' Russell says: 'It was vital employees didn't read about it in the papers before they heard it from the company.'

An internal roadshow and 'Ask Nick' Q and A sessions on the company's intranet service with UK chairman Nick Land were launched. The key message to the 25 per cent of staff affected by the change was that despite it, the company was maintaining its level of contributions and that benefits would be provided to those staff.

Just as the roadshow was launched, media inquiries began. Russell says at this stage the company's response was principally to provide background information on the context in which the decision had been made, to avoid the press filling the information vacuum with speculation.

At M&S a similar strategy was applied. In M&S's case the internal comms challenge was simpler as only new staff would be affected by the changes.

Despite that, an internal relations plan saw the changes explained through the company intranet and staff magazine. External media relations focused on the fact the company would still double contributions made by new staff, without detailing the reasons why the switch was made.

'We needed to make everyone understand that we're affected by the same factors as everyone else,' says corporate press officer Amy Kitson.

One factor that has complicated the issue is accounting standard FRS17, which prevents firms smoothing out fluctuations in the value of pension funds and forces them to include pension fund liabilities in their annual accounts, making liabilities appear larger.

The standard has been seized on by the press since the National Association of Pension Funds warned it could drive many more firms away from final salary-based schemes.

Some firms, notably Iceland and M&S, claim FRS17 was a 'factor' in the decision to make the switch. But others deny the rule has had any significant influence. One in-house comms chief says it is little more than a 'red herring' used by some to justify the move.

Roger Carroll, a Bell Pottinger First Financial director and a former personal finance journalist at The Sun and The Daily Telegraph, says companies consistently fail to communicate the millions of pounds they spend on pensions to their staff and the media.

By failing to explain how defined contribution schemes can help certain classes of employees - shift workers, women who take maternity leave and staff who move frequently - firms are failing to communicate a strong case for their actions.

One could put the discrepancy down to a general lack of enthusiasm within companies for getting to grips with the subject of pensions, which in turn influences the way the subject is communicated.

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