Encouraging employees to monitor retirement savings
Richard Veal, Rob Williams, September 18, 2015
HR has a big role to play in helping staff understand their pensions savings
More people in the UK are faced with having to delay their retirement, with potential consequences for companies that don’t encourage their employees to take control of their financial futures.
According to the Department for Work and Pensions, there are an estimated 11 million people in the current UK workforce who are not saving enough and face an inadequate income in retirement. As a consequence many people are now expected to stay in the workforce longer.
A recent survey conducted by Towers Watson found that 46% of UK employees are predicted to delay their retirement because of these saving shortfalls. Most of those will work at least an additional three years, but 23% are predicted to retire after age 70.
The reasons for savings shortfalls are well documented – typically including inability or unwillingness to think about retirement because it’s seen as too far in the future, negative perceptions about affordability, and the complexity of our pensions system causing people to not face up to difficult choices.
While these seem to be matters for individual employees, retirement adequacy is fast becoming an important concern for employers too. Almost half of employers in a recent Economist Intelligence Unit/Towers Watson survey expressed misgivings about the effect on their businesses of an ageing workforce who have made inadequate saving provisions and who therefore must delay their retirement.
Such misgivings are not without foundation. Behavioural research shows that employees who need to retire later tend to be more disengaged and report higher stress levels, which then creates the risk for employers of a distracted workforce with higher costs. Affected workers may also contribute to blocked career paths, increasing the risk of losing critical talent.
So while the responsibility to save for retirement ultimately remains with employees, many employers are recognising that it is in their own interest to act as a facilitator – providing tools, information and resources to enable employees to take action. Indeed, building a strong savings culture has been a prominent aim for many businesses in the last decade. Five out of six employers surveyed by Towers Watson said they aim to increase efforts to educate their workforce on the importance of saving for retirement.
But how can companies help when faced with the traditional barriers to their staff saving more? One behavioural psychology approach gaining support is nudge theory, which argues that indirect suggestions and positive reinforcement can influence people's decision-making more effectively than direct instruction.
The nudge approach was adopted for the introduction of auto-enrolment in 2012, which has resulted in up to 11 million workers being automatically enrolled into a workplace pension. While opting-out was possible it took a conscious effort to do so.
Getting communication right
While harnessing these kinds of behavioural approaches is fundamental to tackling the motivation and inertia associated with saving more for retirement, equally important is finding engaging ways to embed them in pensions communications and maintain interest.
The changing landscape of affordable technology means that digital communication is increasingly at the forefront of engagement. As we enter the era of ‘always on’ technology, employers can tap into this to deliver information. More than two-thirds of employers are currently focused on increasing the use of technology to deliver information about retirement plans.
The opportunity now is to properly apply this to influencing occupational savings behaviour. Advances in finance modelling use financial information about an employee and calculate at what age they will be able to retire. This approach encourages the individual to think in terms of their whole financial situation. It motivates them to take a more complete, strategic view.
With employers now focusing on helping employees to help themselves, communication techniques and platforms aimed at allowing workers to map out their pension requirements and savings will continue to develop.
Richard Veal and Rob Williams are senior reward, talent and communication consultants at Towers Watson