PENSIONS INSIGHT
What’s wrong with pension engagement Steve Butler, chief executive at Punter Southall Aspire, outlines the problems and solutions
N ew research from the Financial Conduct Authority (FCA) (https:// ind.pn/2gNTWd8) has warned that around fifteen million people or a third of workers are not saving towards their retirement, and the state pension is not enough to maintain their standards of living. According to the FCA, millions will have to work into their seventies or eighties if they want to maintain their lifestyles. While there have been numerous pension warnings for years about the pensions savings gap, little seems to change. When it comes to pensions, many people just switch off and don’t heed the warnings, especially younger people. Automatic enrolment has been the one positive change. It has helped eight million people start saving for retirement. However, there is still a need for people to take pension planning more seriously and it can be argued that employers have a moral responsibility to encourage their employees to save more for the future. Workplace benefits and a good pension are a proven and powerful way of attracting and retaining employees. But outdated communication methods, confusing financial jargon and limited support cause many people to disengage and undervalue the importance of their pension. Pension engagement is a big issue for employers and many are failing in their efforts. Why is this? I talk to chief executive officers and human resources directors all the time and I have noticed they make two serious mistakes when it comes to getting employees excited about their pensions. Firstly, think about buying a car. People don’t just leap into buying one. Instead, they go on what is called a ‘buyer’s journey’, moving slowly from deciding to purchase
one, to contemplation, exploring their options and finally acting. It’s the same with pensions. Employers too often talk to their employees as if they are already at the end stages of their buyer’s journey – as if they have already decided to care about pensions and funds and retirement and just need to decide on the mechanics and the details. They send employees material about how much they should be contributing, tell them they can speak to a pensions adviser and encourage them to sign on dotted lines. That’s fine for the people (usually older) who have already totally bought into the idea that they need to save more. However, it’s utterly useless for most younger employees, who may not have fully understood why saving for the future matters, or realised that they may have a problem when it comes to retiring. The second mistake is that when companies try and explain to staff why they need to save more they end up telling people they ‘should’ do something, which isn’t usually terribly effective. For people to care, they need to be able to visualise the consequences of their financial decisions. It needs to be brought to life and made real. They need to understand how much additional money they will have in their pension pot in ten years’ time if they increase their pension contributions to three, four or five per cent, or more, and how this ...make pensions relevant to people personally, and tap into emotions, not just logic
could change their lives. They need to see how small increases in savings can make a big difference to the pot they build up, and how these could enable them to retire earlier. They also need to be able to picture the different lifestyles they’ll experience if they retire with a pot of £50,000 or £250,000. What kind of car will they be able to afford? What kind of holidays? More basically, will they be able to heat their house or not? And they need to be able to put this in the context of their wider financial affairs. Employers need to make pensions relevant to people personally, and tap into emotions, not just logic. So how do employers accomplish this practically and what tools can they use to really bring it home to employees that they need to save more? To challenge this status quo, we’ve launched Next Generation Savings, our vision and a five-step model for changing savings behaviour. To support this vision, we have also launched myAspire, a brand new online and interactive savings platform developed from speaking to human resources and benefits directors and chief executive officers who are all desperate to get their employees more engaged with their financial wellbeing. myAspire has been built to help people plan, value and engage more with their workplace pensions and savings, and allows employees to visualise the difference that savings would make. People can see not just how much their pension is worth, but their whole financial universe including the value of their house, their bank accounts, investments, other savings accounts, and the implications for them, every time they decide to save. n
| Professional in Payroll, Pensions and Reward | December 2017/January 2018 | Issue 36 24
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