HR must help employees to make informed financial decisions

Financial awareness is a broad subject and pension planning provides a good foundation upon which to build. But simply providing retirement choices and options does not equate to success, nor does it guarantee value for the employer. The ability of an organisation to engage employees in decisions concerning their financial future is becoming the key determinant in successful preparation for retirement.

To engage employees effectively, an organisation must first research and segment its workforce, based on their financial priorities and spending patterns. By using employee surveys, HR data and tailored interviews, employers can develop a campaign that targets specific employee needs - such as ‘young and aspiring to save' or ‘established and seeking options'. Determining the most effective way to segment the workforce can require in-depth analysis; however, it will yield the required results. For example, successful companies we have worked with recently have used life stages, age, salary and position in the company as ways of targeting different needs.

Organisations then need to be clear on their business objectives and define success in a specific manner, asking questions such as: Does plan participation need to be higher? Do contributions need to increase? Should investment decisions be more proactive?  

Many companies identify employee education, using workshops, guides and modellers, as the answer to questions like these. Yet, while education is a good starting place, it does not work on its own to change employee behaviour. That is mainly because education is most likely to appeal to those who tend to think about their future and tend to be financially sophisticated. At one of our client companies we found that historically only 1% of attendees of the company pension seminar followed up afterwards by paying more into their pension. We also found one-on-one pension meetings carried out by external parties were having dismal pension sign-up rates in another organisation, despite the fact that employer contributions were generous and not conditional upon employee contributions - a seemingly win-win situation.

What has proved more powerful in triggering action is the workplace network. Research we conducted at a FTSE-100 company found that the most influential source of advice and call to action on financial matters for ‘inactive' pension plan participants was endorsement from line managers and colleagues, especially for those under 40 years old.

One organisation used this research to design a campaign that meant it did not engage younger employees directly. Instead, line managers were trained to have informal discussions with them about their finances. At the same time, older employees were targeted with ‘planning for the future' workshops and online modellers, which proved popular in helping them to think about life after work and take any necessary action. This group was also supplied with detailed and extensive information concerning their pension arrangements, in recognition of their fluency and appetite for detail.

We have also seen organisations engineering pension options in a way that better enables employees to make positive decisions. One organisation found that the reason 90% of employees did not select an investment option was that there were too many options from which to choose. This organisation is now reducing the choices from 10 investment options to three, with the result that employees can comprehend the decisions they are asked to make more easily.

These examples are just some of the ways in which innovative organisations are beginning to engage with their employees around their financial wellbeing. Designed and executed effectively, a pension initiative will encourage employees to take ownership of their own financial futures, both in taking positive steps towards their life after work and in engaging with the organisation. Financially secure employees are indeed more likely to be productive employees, and organisations do need to ensure that the right financial choices are made across their workforce.  

Ben Wells is a senior consultant in human capital & communication at Buck Consultants