Need to know:
- The cost-of-living crisis may result in employees disengaging with pension saving.
- But the chances are employer pension communications may not be up to scratch.
- Delivering clear messages at the appropriate time will pay dividends in securing financial wellbeing and HR operational efficiency.
Retirement savings is a bit like cleaning out gutters or that cupboard below the sink in the kitchen. We know we need to do it, we will worry if we do not, but we do not want to think about it until we absolutely have to.
Over the past decade, automatic-enrolment has helped take the pressure off of that decision. Employees have been placed in a workplace pension scheme unless they chose to opt out. But some employers are concerned that given the current cost-of-living crisis, the new normal of hybrid or remote working may lead to employees disengaging from pension saving.
This could have disastrous consequences for the individual’s personal wealth, not to mention the organisation’s workforce planning.
Cost-of-living crisis bites
People are certainly having to tighten their belts in 2022. Most consumers experienced a 50% hike in their utility bills in April, with further rises expected later this year.
Data from the Office for National Statistics shows that basic foodstuffs have spiralled in cost. For example, the price of supermarket pasta has increased by 50% this year, while most other staples have experienced gains of between 10% to 15%.
Auto-enrolment is making a difference, but the majority of employees are not saving enough now, and while it is better than nothing, it will not meet most peoples’ expectations.
The state pension is currently worth less than £10,000 a year. An individual under 40 will not be eligible for it until they are 68. In fact, the last of the cohort that qualify for the state pension as they turn 67 were born during the Queen’s silver jubilee in 1977.
The Pensions and Lifetime Savings Association (PLSA) has created a set of retirement living standards to give employees a benchmark to measure their retirement saving against.
The minimum level of £10,900 a year, a little more than the state pension, will cover the basics, but not much else, while a comfortable life will cost around £33,600.
Employees would need a pension pot of between around £500,000 to receive an income from between £20,000 a year by annuity or perhaps as much as £40,000 from income drawdown. That is a huge variance from a fund that few will achieve at current savings rates. No wonder employers are concerned.
In addition, it is harder for employees to keep pensions at the forefront of their minds when they’re not in the office, says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown. “The pressures of the cost-of-living crisis may lead people to think that a solution would be to just cut pension contributions. But they don’t necessarily think of what they’re giving up.
“One of the things that auto enrolment has shown is that it is always easier to get people to do the right thing by accident, than to make them do something active. And so, if [employers are] trying to get people engaged at a distance, it’s going to require different tools,” she adds.
Received but is it understood?
Having staff in the office less before is the least of an employer’s problems, says Damian Stancombe, a partner at DrumRoll, the communication division of Barnett Waddingham.
“While it’s true [employers] will have less time to instil corporate culture into employees, engagement with the pension scheme is a whole different ballgame,” he explains.
The vast majority of employees do not look at their pension communications more than once a year, so why should they be any less engaged with their pension than they were before? If an employer is concerned that its pensions communications will not get through to employees working remotely, it should consider whether it was hitting the marks before. The chances are, it was not.
“And that means looking at how [employers] engage with members, not necessarily how frequently [they] contact them,” Stancombe adds.
This requires delivering creative communications, but in the knowledge that every employer, and most of their employees, are all different. Stancombe makes no bones about his own dyslexia and says good communnication is all about matching an appropriate medium with the right audience.
Avoid stating what not to do
Even if an employer fears the worst, the first thing to avoid is telling employees what they do not want them to do, says Hannah Lewis, behavioural expert and founder of marketing firm, Behave.London. “We don’t draw people’s attention to the things we don’t want them to do,” she explains. “Up until that point, they may not have seen it as an option.”
Employers should not encourage employees to increase contributions during this period, either, unless it can be achieved out of a win, adds Lewis.
“Get people to commit to raising their contributions ahead of their annual increase or bonus,” she says. “That way it comes out of something they’ll receive in the future and, therefore, won’t miss.”
Finally, avoid the blanket email. Employers should question how powerful existing pension communications are and whether they are sent at appropriate times.
“If you want someone to do something like save more, start on a Monday, the first of the month, just after payday or on their birthday,” adds Lewis. “Personal anniversaries resonate with employees, and they are more likely to be open to a suggestion to save more at those times.”