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    How GIP helps HR Directors keep pensions promises

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    Defined Benefit (DB) pension schemes can be as much as a challenge for HR as they are for Finance Directors, CEOs or Trustees, especially in the phase when they are replaced by Defined Contribution (DC) schemes. Our latest pensions article shows how Group Income Protection (GIP) can help HR teams manage the people side of pensions.



    HR Directors (HRDs) have a lot on their many spinning plates just coping with their everyday duties. But a far-reaching and difficult pension scheme change brings extra challenges and focus for HR. Anything that can help smooth the way provides real value at a disruptive time.

    As of March 2019, there were still over 5,400 DB pension schemes outside the public sector1. Many are struggling with funding, and while 89% are closed to new entrants, the majority are still open for future accrual2. Employees in these schemes are still notching up additional years of service in support of pension entitlement, and the resultant benefits harmonisation and cost issues for HRDs are challenging to say the least.

    So for many HRDs it’s more a question of ‘when’ rather than ‘if’ closure for accrual becomes inevitable. And when the time comes, the work for HR in managing the transition is substantial and brings unique challenges:

    • Understanding how to meet commitments to current, previous, retired and retiring staff

    • Knowing how DB pension schemes fit organisations’ overall reward strategies

    • Ensuring fairness and consistency for all employees, whether they’re in the DB pension scheme or not

    • Navigating pensions change in a way that meets the needs of different employee groups

    • Negotiating with staff bodies and unions representing employees who are often the organisation’s longest-serving and valued employees

    Anything that helps HR rise above the tide is welcome – which is where Group Income Protection can help. GIP can help address the challenges associated with early retirees and the wider workforce.

    What problems do DB pensions particularly pose for HR?

    The commitments associated with DB pension schemes present unique challenges for HR Directors, including:

    • High cost
      Where DB schemes are still accruing, employer contribution is typically in the range 16%-20% of salaries – substantially higher than the 5% pension contribution typically made by employers in many DC schemes3.

    • Employer as guarantor
      The employer is legally obliged to meet the promises made in the scheme rules. As ‘scheme sponsor’, the employer is ultimately responsible for funding future pension promises.

    • Difficult to change
      Making significant changes to DB schemes (like closure to new entrants, or for future accrual) often takes considerable time and effort due to its complexity and the multiple stakeholders involved. For already busy HR teams, resourcing the work, while ensuring that staff and their representatives are genuinely engaged through the process, is an enormous task.

    • Unique scope
      The HR function has to consider the financial welfare of staff still in the scheme and retirees and leavers – a far wider scope for HRDs than their everyday role spent meeting the needs of their current workforce.

    • Focus on longest-serving employees
      Most DB pension schemes are now closed to new entrants – many for some years. So members are likely to be long-serving employees with deep experience, knowledge and customer relationships. If the pension promise was one of the reasons staff joined the organisation, the change is likely to be sensitive and unpopular.

    • Highly technical
      Pensions are highly specialised, and a focus for the Financial Director as well as the HRD. Expert advisers, such as actuaries and investment managers, are key influencers –sources well outside HR’s day-to-day experience.

    • Inconsistency
      Not only is the core pension between DB and DC schemes likely to be different, related benefits, like financial protection if an employee is unable to work, may not be available to everyone.

    How can GIP help?

    GIP can help pension scheme members (and their employers) if illness or injury forces them into early retirement:

    For the employee/member

    Many DB schemes pay members who have to retire early through ill-health. But a replacement DC scheme may not offer the same safety net. Without access to the early pension that the DB scheme often provides, an ill or injured employee forced to leave work could struggle.

    For the employer

    If the closed DB scheme has to support new early retirees due to ill-health, it can add a significant financial burden – one that ultimately remains the employer’s responsibility as scheme ‘sponsor’.

    How can GIP help HR?

    Introducing GIP and the financial protection it offers can help to both bridge the gap left following a switch from DB to DC pension, and lessen the cost uncertainty.

    GIP can:

    • Protect people who retire through ill-health

    • Help general health and wellbeing

    • Reduce financial risk

    • Potentially reduce costs

    • Provide an unbiased, fair and expert assessment of a member’s condition

    • Help to harmonise benefits across the board

    These plus points often address staff body and union concerns, helping smooth the overall transition from accruing DB scheme to replacement DC scheme.

    In addition, GIP helps protect staff on an everyday basis. As well as the financial protection it offers during long-term illness or injury, it frequently comes with built-in health and wellbeing tools, complementing organisations’ existing programmes, and helping to reduce prolonged staff absence – key focuses for HR.

    Questions HR Directors could ask themselves

    • What are the pension scheme’s commitments for ill-health early retirement?

    • Can the pension scheme cover unexpectedly high rates of retirement through ill-health and would volatility be a problem?

    • How would the pension Trustees decide if a personally known colleague was entitled to ill-health retirement payment?

    • Does the employer offer an Employee Assistance Programme, vocational rehabilitation, or access to specialist advice and support?

    Liz Walker, Unum’s HR Director to December 2019, said: “The uniquely wide scope of DB pensions can also bring with it a unique set of problems for HR teams. In no other field of HR is there the same need to consider the welfare of existing, previous and retired staff – all with potentially different requirements.

    Group Income Protection ensures protection for everyone, whether they are at the start of their careers or are senior people with many years of expertise and experience. Simply put, GIP levels the pensions landscape, while bringing other, added value support tools that can really help HR with their everyday duties.”

    How Unum can help

    We can help organisations looking to remove the risk associated with ill-health in DB pension schemes and meet the needs of all stakeholders, whether trustees, employers, members and staff bodies.

    For more information, contact Read our article on how GIP can help employers considering replacing a DB scheme – Itching to Switch? and our trustee-focused GIP piece – A Question of Trust.

    Unum also offers Group Life, Critical Illness and Dental insurance.


    1 The Purple Book, DB Pensions Universe Risk Profile, Pensions Protection Fund, December 2019, Executive Summary p9

    2 The Purple Book, DB Pensions Universe Risk Profile, Pensions Protection Fund, December 2019, Executive Summary p9

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