The year of 2023 could be renamed the year of pension furores.
There’s been a set-to over the chancellor’s scrapping of the £1 million cap on tax-free pension savings; arguments over whether it’s fair to boost state pensions by 10%, and an ongoing debate around the economic viability of forestalling a rise in the pension age to 68.
Many will have also seen news footage of the ongoing demonstrations in France over the same issue.
However, for all the media coverage pensions get – and for the substantial changes pensions have undergone over the last quarter century, including the end of the default retirement change, the introduction of auto-enrolment and employer contributions, increased access to pension pots – pensions are an area employees just aren’t certain or secure about.
This issue is particularly pronounced when it comes to younger generations.
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Not only do some experts predict the state pension might cease to exist entirely when Millennials and Generation Z expect to retire, but those born after 1981 also have weaker retirement benefits than previous generations.
In fact, according to 2017-2018 YouGov data, 40% of Millennials have no pension provision at all, with three in 10 saying they don’t understand pensions and many putting saving for a holiday ahead of contributing to a retirement fund.
With CIPD data also highlighting that 7% are financially worse off after the impact of Covid-19 – and with pension funds hit by increased demands to offer societal and climate value, as well as the ongoing Ukrainian and financial crises – it’s hardly surprising there are more calls for employers to deliver better pension education as part of their financial wellbeing offering.
Fiona Terry, senior pension consultant at Howden Employee Benefits and Wellbeing says failure to educate employees on retirement saving will have a negative impact on their long-term financial wellbeing as the state pension (currently around £10,000-a-year) is likely not enough to sustain them after work.
She says: “Additional retirement savings are a necessity and failing to provide our employees with pension education will leave a huge gap in understanding.”
With most private sector employees having autonomy over pensions choices, Steve Hammond, head of reward at Fujitsu, adds employers also have to consider retirement savings education as part of their wellbeing strategy.
He says: “An important part of any financial wellbeing strategy is ensuring people can make informed financial choices and this is where pensions education comes in.”
Indeed, CIPD pay data highlights that 61% say understanding their money is an important factor in financial wellbeing, something especially true for younger workers, while separate 2022 data on pay from the HR association shows that when a business rolls out a financial wellbeing policy there is a 20% jump in the number of employees who feel they can save for a pension.
But how can employers roll out pensions education effectively?
The CIPD recommends tailoring pensions education to different cohorts’ needs, getting in experts to lead sessions, having different delivery styles and trialling and then iterating educative approaches.
Charles Cotton, performance and reward advisor at the CIPD, says this means employers aren’t wasting investment on a benefit if they’re going above minimum contributions.
He says: “Pension and retirement should be part of a broader holistic approach to employee financial wellbeing and the behavioural science suggests that it should be made relevant to people’s situation, such as where they are in the employee lifecycle.”
Terry adds employers shouldn’t forget that pensions education should also take into account the changing regulatory landscape and earnings differentials as well as changing workforce demands.
She adds: “Providing support for employees on changes means they are more able to adapt savings levels, but employers need to be aware of the changing employee mores, too, such as the need to align investment with ESG strategy.”
There are also decisions to be made around how content is delivered, adds Hammond, explaining that the technology firm provides tailored webinars and tools on contribution and investment choices, particularly to junior employees.
Fujitsu also ensures pension education lines up with its overall financial wellbeing strategy.
Hammond adds: “It focuses on four themes such as giving people the education on finances, flexible benefits, individualised support and discounts offered to employees.”
"Pensions education is an absolute must-have"
For Alex Arundale, chief people experience officer at Advanced, pensions education includes getting external experts in to help deliver tailored pension support and financial wellbeing and communicating effectively.
She says: “Data is also really valuable and ensures that we have early sight of any trends, such as knowing our under-22s are least invested in pensions schemes.”
It is such insights, and the interventions that follow, that are important, says Hammond as it can allow younger, and currently less invested, groups to benefit from compound interest early which, adds Terry, can help circumvent potential worry later down the line.
She says: “Pension education needs to be a focus so that employees are fully aware of the importance of retirement saving; for employers, this can then be linked to reduced time off work due to stress, enhanced business reputation and be a vital tool for recruitment and retention.”
With Howden data also showing half of the employees value workplace pensions ahead of any other benefit, Samantha O’Sullivan, policy lead at the Chartered Institute of Payroll Professionals (CIPP) said that in the ongoing cost of living crisis, education and communication around pensions could be one way for businesses to show they care about their staff in a cost effective way.
She says: “Raising baseline salaries may not be something that employers are able to do, but they potentially could look to increase their pension contributions.”
In fact, Cotton says with many employees reducing pension contributions to deal with inflation, education around pensions can be one way to show they’re in invested in everything their employee does.
He says: “Employers should highlight the potential implications for people if they take a break from contributing as this can have consequences later in life.”
And if employers can get employees engaged with pensions, Sam Holmes, chartered financial planner and head of coaching at Bippit, said it is an effective ‘golden ticket’ to engagement on drier topics, especially with younger workers.
He explains: “Pensions education is an absolute must-have. If you get someone saving over a long term and understanding the benefits of deferred gratification, you’ll get them aligned with building long-term financial health.”
And what right-minded employer wouldn’t want the benefits of better engagement, improved financial wellbeing, and for a workforce to know they care even during difficult moments?
This article was first published in the May/June 2023 issue of HR magazine. Subscribe today to have all our latest articles delivered right to your desk.
