Pensions: The importance of being reliable for port industry

pension Low-cost pensions can be a major weapon when seeking top talent

A good company pension can make a difference in the quality of employee an employer might be able to attract, but the key is reliability, writes Alex Hughes

“Nowadays, pensions are a critical part of the [overall] employee benefits package in the UK. This is because, since 2012, all employers have had to enrol their employees into a
pension scheme as a result of auto-enrolment legislation,” says Ensign Chairman Rory Murphy. “Furthermore, we have witnessed very few people choosing to opt out of a company pension scheme, because tax advantages and employer contributions make it a great way of saving for the future.”

Typically, only larger employers in the UK operate single Defined Contribution trust-based pension schemes in-house due to the costs involved. Most employers seek to reduce the regulatory burden associated with such schemes and are therefore turning to group personal pensions (through an insurance company), or to specialist providers that already have high-quality industry focused schemes available at a fraction of the cost.

Significantly, while all employees meeting a standard series of criteria can be automatically enrolled in their company's pension scheme in the UK, they can also easily opt out if they wish to stop paying into this, although few choose to do so.

According to Mr Murphy, for the employer, being able to offer a high quality, low-cost pension can be a major weapon in its armoury, forming part of a benefits package that enables it to edge ahead of competing organisations in attracting and retaining top talent. Improved employee morale, perceptions of value and a sense of inclusivity will all also serve to help lock-in the brightest and the best.

“In a survey we carried out with both employers and employees last year, we found that 96% of employees find a good pension scheme 'very or quite' important,” he notes.

Nevertheless, he stresses that employees must always be careful of the charges that pension schemes apply, as these can have a dramatic impact on the overall money being saved.

This is where the maritime industry is at an advantage. Ensign, for example, is a not-for-profit industry wide scheme that not only looks to maximise returns for its pension-holders, but has one of the lowest management charges applied - well below half of the industry cap.

As for the level of contributions, as of April 2019, employers in the UK must now pay a minimum of 3% of their employees salary into a pension and employees 5%, resulting in a total of an 8% contribution to the pension pot.

“In general, most employers in the Ensign pension plan offer a minimum joint contribution of 10%. This is split by the employer paying a minimum contribution of 6% and the employee paying a minimum of 4%. However, both employees and employers should be aware that individuals should be saving 20% of their earnings each year to achieve the same income in retirement that current retirees receive,” says Mr Murphy.

Yet complications still remain 

While consolidation amongst shipping and maritime companies is now common, one of the biggest obstacles to this happening is the management of pension schemes, with Mr
Murphy noting that corporate deals often break down due to the pension liabilities on the books of the companies involved.

“A pension deficit is a debt, and any company with a debt on the scale of some pension deficits makes that business a much less attractive proposition for potential buyers or partners. And any firm that enters into a potential corporate transaction without taking this into account could be in for an uphill struggle. Additionally, there are strict regulations surrounding pension debt and the ways in which it can be treated in mergers and acquisitions,” he says.

In other countries, some port companies have struggled to manage pension deficits. In Brazil, for example, solving problems linked to the port workers' pension fund, Social
Security Institute Portus, is broadly recognised as the biggest challenge facing the senior management of the São Paulo State Docks Company (Codesp).

In fact, the planned public offering of shares in Codesp and its future reorganisation very much depend on this major issue being solved.

Details of the position at Portus came to light during a recent presentation of the performance of the first 100 days of the new management team at the port company.

The Board of Directors, headed by the president Casemiro Tércio Carvalho, revealed that the fund is short by around $770 million, of which 50% is now in the form of debt owed by Codesp. Some 4,000 members are currently beneficiaries of the fund and 385 retired members draw on it.

Mr Tercio explained that there is a plan in place to avoid Portus having to be wound-up. This mainly involves the central government making a significant financial contribution to the fund. Everandy Cirino dos Santos, the president of the Union of Port Administration Employees (Sindaport), reveals that a proposal to help save the fund has been prepared by a consulting firm and approved by those concerned.

“We will make some changes and present them to the government. We want the financial situation of Portus to be resolved as soon as possible,” he says.

To avoid this type of problem, the UK makes it possible for workers to sign up to third party pension schemes run by experienced maritime pension experts. These can dramatically reduce costs for the employer, and provide a reliable option for employees.

“Being able to provide a good quality third-party scheme will also provide a solution to the consolidation of a company and, in turn, its pension scheme. A third-party industry-wide scheme will allow for every member's pension to stay intact since the scheme will not be a part of the business itself,” stresses Mr Murphy.

He adds that the UK maritime industry is fortunate that it has its own ready-made, not for profit, industry-wide Defined Contribution pension, which over 65 maritime employers have already signed up to - Stena being the most recent example.

“It is a high quality, low-cost, pension proposition run by and for those in our industry. As such, it ticks the right boxes for employees who recognise the value of a good pension, while helping employers to manage the cost of providing it,” he says.

In fact, in Mr Murhpy's opinion, like any benefit, or developmental tool, pensions help a workforce feel valued and looked after and should be treated as such. “Current and potential employees want to feel as though the company they choose to work for is investing in them and, just like training, pensions can be used as a tool to reassure workers that they matter,” he says.


The state provides

In France, all pensions are paid on a public basis, notes Laurent Mouillie, commercial director of Port-la-Nouvelle.

“In effect, the active workforce pays taxes that fund retired people. So, when we retire we receive pensions,” he says. Pensions do not necessary correspond to what active people have paid during their life and there are certain discrepancies that the government does wish to amend.

Changes might mean that people have to wait longer before they can retire, but, basically, the rules will remain the same for all workers.

At the same time, some private companies do make available an additional private plan for their employees, while individuals are also free to make private arrangements to
receive an extra pension.

So, while in some countries, the offering of a private pension scheme by an employer might make a radical difference in the way that employer is viewed by the workforce, in
France, the vast majority rely on a state pension to cover their needs when they retire.

“Pensions based on banks or financial funds are only optional or [perhaps seen as a] bonus from employers,” says Mr Mouillie.

In Finland, the situation is broadly similar, although the onus passes from the state to the employer in providing a basic pension.

Rauli Pohjola, personnel director at terminal operator Steveco, notes that employers must take out statutory pension insurance for all their employees.

“In practise, the employer takes out insurance on behalf of the workforce, deducting their contribution from wages and paying them to a pension provider. This all is based on legislation and covers all workers,” he says.

He concedes that there has been a lot of public discussion about the future durability of this system, this is currently how the situation works in Steveco, which doesn't offer an additional in house pension scheme to employees.

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