HR’s role around pensions is shifting from simply offering employees a scheme to encouraging them to make higher contributions.
At the forefront of this shift have been increases in minimum contribution levels – to 5% this April (of which the employer must pay at least 2%) to be followed in April 2019 by a further rise to 8% (of which the employer must pay at least 3%).
No official data on whether opt-out rates have consequently increased is available yet. But according to the CIPD, behavioural science insights indicate that employee contribution rates can increase to 6% before they start to have a notable impact on membership levels.
But for many even this rate simply isn’t enough. According to the Pensions and Lifetime Savings Association (PLSA), the minimum level should be raised to 12% between 2025 and 2030 to ensure future retirees will be financially secure.
But for staff with more pressing short-term financial needs – and who dislike reading complex financial literature – long-term planning isn’t top of the agenda.
Although prohibited from actually giving advice, it falls to HR to offer guidance and encourage employees to boost these contributions now so that they are financially secure down the line.
So how can HR engage employees around upping their pension contributions?
1. Effective communication
One of the key ways to encourage employees to up their payments is to simplify the complex information around pensions. A straightforward and well-written circular can help change people’s perceptions of the value of saving for retirement.
Communication must be relevant to the demographic. For example, a circular aimed at Millennials would need to be very different to one used for an older workforce.
Standard Life reports that after sending just one letter communicating the minimum contribution increases, it has seen a complete shift in attitude from ‘it’s another cost’ to ‘really good. It has a bigger impact on my retirement outcome than I would have realised’.
Organising pension awareness days, workshops and seminars is another way to get the message out, alongside internal communications campaigns that target those who aren’t making the most of any matching contributions scheme.
It’s also essential to make the message personal to the individual as people won’t take the leap to paying in more unless it feels right for them.
Banafsheh Ghafoori, senior communications consultant at creative communication agency like minds UK, says: “You must get into the emotional state of the employee by putting yourself in their situation.
“Too many employers are assuming what employees feel, so make sure you do workshops and surveys or ask colleagues questions in canteens.”
For some employees this may mean having aids to visualise the benefits higher contributions could bring to their personal lives. Including illustrations or personalised pension statement videos can make the pension seem more tangible as a personal asset.
As Sean Westwood, DC and financial wellness principal at Mercer, explains: “Many of us prefer to absorb information visually. Sixty-four per cent of our clients’ members who receive a talking benefit statement have viewed the animation, and 47% of those who viewed it took action to increase their contributions.”
3. Online access
Affording employees the ability to view their pension investments online at any time, and to use a range of tools to estimate the income they will need in retirement, can help bring the future into focus in a non-threatening way and motivate and empower them to take the right steps.
“Many employees will think that the auto-enrolment minimum contributions are the levels recommended by the government for a comfortable retirement, but these tools will quickly help them realise that they are still not enough,” says Jamie Jenkins, head of pensions strategy at Standard Life. “[Online tools] can trigger voluntary contribution increases.”
4. Using incentives
Employers could consider using incentives to enhance engagement with pensions. For example, Legal & General runs a quarterly free prize draw encouraging members to register for online account management.
The biggest incentive is to match employee contributions, and a personalised message can be particularly useful in this respect. For example, if an employee is informed they only pay in 5% and get a 5% match, but that most of their colleagues pay in 7% and so get a 7% match, they may rethink their contributions.
5. Saving more tomorrow
Getting employees to commit to increasing pension contributions over time can help combat the problem of them prioritising more immediate financial needs. This approach can be very cheap to introduce, though HR should be aware that it will result in an extra admin burden.
“By committing to doing something in the future they feel less financial pain now and are more likely to sign up to the plan,” says Charles Cotton, performance and reward adviser at the CIPD. “Also, if you can link the increase in contributions to annual salary rises, employees are less aware of the impact on their pay packet.”