Pensions have always been an integral part of employee engagement programmes. James Walsh from the PLSA discusses how HR can help to engage their staff in workplace pensions.
Staff engagement in workplace pensions is generally low for a number of reasons. People might feel disconnected from their pension savings. This is compounded by poor financial literacy and a lack of understanding of the benefits of saving for retirement. But there are a number of ways the HR team can help ensure that a saver who does not want to make active choices about their pension savings, either while working or as they reach retirement, still gets a good outcome.
Know your employees
I don’t know who it was, but whoever said “The basic building block of good communications is the feeling that every human being is unique and of value” was spot-on. As an employer, not only are you often responsible for at least part of their financial wellbeing but you understand how they prefer to be communicated with and can build this into your benefit strategies. The Pension Quality Mark’s Good Communications Guide has a chapter dedicated to practical advice and tips on how to better understand your employees, including segmentation and member profiling.
HR professionals can also offer staff opportunities to tailor their pension saving to suit their own circumstances and preferences where they wish to do so. The Pensions Policy Institute has argued there are points in time – ‘teachable moments’ – when people are most likely to engage with information and open to behavioural change. These can be anything from leaving full time education, to buying a home, or going through to divorce. These teachable moments can be good opportunities to nudge people towards relevant information about their workplace pension. HR professionals should consider identifying the most appropriate teachable moments for their workforce – not necessarily when they first start their employment – and planning their engagement strategy accordingly.
As the Pensions and Lifetime Savings Association (PLSA) argues in its recent Hitting the Target consultation, good engagement is not a one-off special event. HR professionals should use regular engagement to build their workforce’s familiarity with – and understanding of – pension saving over time.
Saving for retirement
People find it difficult to take long-term decisions. Behavioural factors, such as an inbuilt inclination to value today over tomorrow, play a part in this. So does financial capability, because while people are often good at financial tasks they perform frequently, they often struggle with tasks that they perform less frequently or which are complicated. These factors result in a natural disengagement from retirement saving and many people simply won’t take active decisions while they are working and saving.
HR professionals can make a real difference by explaining the benefit of automatic enrolment, reassuring employees their workplace pension scheme is being well run and helping those who do not take active decisions to achieve a good outcome.
Since 2015 people have had more freedom and choice in what they do with their retirement savings. This is good news for savers but also presents important – and sometimes overwhelming – choices to make at retirement for staff members who have been saving into the workplace pension scheme. In an ideal world, people would either decide for themselves what to do with their pension savings or be guided towards appropriate, pre-selected solutions. In either case, good engagement is crucial to ensure they achieve the best possible income in retirement.
Automatic enrolment has made great headway in reversing the decline in UK workplace pension savings. Today, around 9.3 million people have been automatically enrolled into a workplace pension.
Automatic enrolment is based on inertia, the idea that people will take the line of least resistance when presented with a choice. By reversing the decision to opt-in to a pension scheme to one where people have to choose to opt out, automatic enrolment has ensured that around 90 per cent of those enrolled have chosen to keep saving. So if that’s the case, what role should HR professionals be playing?
While – under this new approach – people are likely to be paying into a pension, they may well not understand the benefits they are receiving or have queries about what some pensions jargon means. HR professionals are ideally placed to help them navigate these issues and if they are unable to provide the information needed, to highlight how they might access this.
Next month (6th April 2018) employers and pension savers will see the first increase of minimum contributions under automatic enrolment – from 2% of qualifying earnings to 5%. And this will increase again in April 2019 to 8% of qualifying earnings. Some people and employers are already making these higher contributions with figures from the recent AE Review suggesting that in 2016, over half (5.3 million) were receiving an employer contribution of 4% or above. However, HR professionals need to be ready to answer any questions in a neutral and factual manner, so that people understand that saving £50 – for example – out of their monthly pay packet can deliver significant long-term benefits.
HR professionals have a significant role to play in engaging with employees and ensuring that they understand and value their pension benefits. Good luck!