There is no getting away from the fact that currently, a frighteningly large proportion of the UK population are destined to retire on a level of income that will forever be a challenge. Even more worrying is the fact that many people have no idea just how low their post-work income is likely to be.
Take this scenario: one of your pension members looks at their ‘close to retirement’ paperwork and concludes, ‘I think I can live on that’. Then the penny drops. The figure they are looking at is their total fund value, not their projected annual income. One of my colleagues recently experienced this exact situation. What followed was an emotional and tearful exchange with a devastated employee, trying to process the realisation that she will not be able to retire any time soon, if at all.
This highlights how workplace pensions can play a vital role in your employee wellbeing and reward offering. A high-quality scheme, which is well governed and effectively communicated can really set an employer apart. If you communicate your workplace pension as part of a broader financial education programme, even better.
Consider a happier employee pensions journey…
The member in the example above joined her employer’s scheme at the first opportunity. She paid in the 3% needed for the maximum matching employer contribution, and read her paperwork. She had made a plan.
The problem is she joined too late – in her 40s, having returned to work after maternity leave with no pension in her early career. Nobody had highlighted that a 6% overall contribution is not enough for a decent retirement income. The paperwork received from her provider was too awful to comprehend. An all too familiar story. However, with auto-enrolment, ever-advancing technology and an increasing focus on financial wellbeing, we can easily change the narrative.
- Let’s assume that today our member is 22, just starting work and is auto-enrolled into her employer’s scheme with 3% matching contributions.
- Roll the clock forward to April 2019, and her total contributions increase to 8% in line with auto-enrolment legislation.
- A few years later she starts a family and decides to take a career break. Having attended some of the financial education sessions held at her workplace, she understands the importance of long-term savings. She and her partner arrange their budget to allow her to continue saving a small amount into her pension.
- When she returns to work, she is fortunate to have an employer who appreciates the power of their pension offering in attracting, retaining and rewarding staff. They offer a 7.5% matching scheme and she fully embraces this.
- Finally, let’s assume that the 4kg A4 package of guff that comes from the pension provider each year, is replaced with something that actually helps her understand whether her savings are on track or not.
Effective communications really are vital. You could have the best scheme in the world, but it will only help you improve engagement and drive loyalty if your employees know about it and understand how it benefits them.
The good news is, many of the major pension providers are starting to harness the power of technology to transform how they communicate with members. You can now ask: ‘Alexa, how on track is my pension?’ Answer: ‘According to your recorded plans, you may only be able to afford one holiday abroad every two years if your pension growth and input carries on at the current rate. But why not increase your contributions etc…?’
Voice recognition, artificial intelligence, robo-advice and holographic imaging – let’s embrace the tech that can make pensions more accessible – and the sooner the better please!
The ‘magic’ equation for pension success:
- Pay enough in:employees should have access to clear information and useful tools to help them understand how much they realistically need to save in order to hit their target retirement income. Above everything else, building a decent sized retirement pot starts with making decent sized contributions.
- Do it for long enough: 40 years is generally required and many people don’t appreciate this – again, effective communications and interactive calculators can help employees understand the cost of delay.
- Get good growth: for those who don’t make their own investment choices, your trustees or governance committee (along with their advisers and providers) should be keeping a close eye on your scheme’s default fund. For those who choose to invest outside of the default fund, it again comes back to providing the right communications.
This is the path to achieving ‘good member outcomes’. Get this stuff right and ensure that everyone knows where the goal posts are. Helping your employees navigate the labyrinth of pensions can only have a positive impact on their wellbeing, which in turn will boost engagement. Everyone’s a winner.
This article was first published with REBA on 8 November 2017.