Workplace pensions are a legal requirement for all UK businesses no matter how small. Since 2012 more than 8 million people have been automatically enrolled into a workplace pension by their employer.
With auto enrolment contribution levels set to rise on 6 April 2018, it’s more important than ever that small businesses improve pension awareness to prevent employees opting out of the company pension scheme. To help you do this, we asked Steve Butler, CEO, Punter Southall Aspire to reveal his tips on how you can help ensure how your staff continue to save for their retirement.
In April 2018, the auto enrolment minimum contribution rate increases from 2% to 5% of qualified earnings. Employers will pay at least 2%, with the remainder paid by the employee.
Currently, employees only need to pay 1%, so this represents a notable increase in their contributions. This minimum rises again on 6 April 2019 to 8%, at which point employers will pay at least 3% and employees the remainder.
This is a significant jump for many employees; it could throw monthly budgets out of kilter and make it harder to afford things they want and need such as rent, holidays or even new shoes for their children.
Given the choice between less money in their bank account today, and more money in 30 or 40 years’ time, some employees will want to leave their pension scheme.
So how do companies persuade employees to save more and up their contribution levels?
Companies need to step up their communication about the importance of pension savings and discuss the potential consequences of opting out.
The minister for pensions and financial inclusion, Guy Opperman, stressed this issue in January when he highlighted the need for government and the industry to work in partnership to enable savers to take control of their future.
He said that British people need “to fall in love with pensions, savings and investments again,” and “grasp clearly” the need to save for retirement.
One of the priorities Opperman outlined to ensure customers are engaged with their finances this year is delivering greater engagement with pension savings and automatic enrolment.
One barrier that is thought to prevent people becoming engaged in pensions is the financial jargon favoured by the pension industry. A survey by Mintel found that 56% of people believe that financial jargon stops them from taking an interest in their savings and from making well-informed, sensible financial decisions.
While the pensions industry is fond of acronyms such as ‘PPP’, ‘LISA’, ‘GMP’, ‘SIPP’ and uses terms like ‘flexible drawdown’ and ‘entitled worker’, such language can baffle those who don’t work in the industry.
To improve engagement, any communication used by employers should;
- Be jargon-free,
- Be simple and easy to understand, and,
- Ideally include analogies and examples that illustrate the importance of saving for retirement.
Influencing behavioural changes
Companies also need to look at how they can influence their employees to change their behaviour towards pension savings.
Many employers mistakenly believe that simply telling people to save more will change behaviour, but unfortunately, it’s not that straightforward. Most people will only change if they understand how the benefits will relate to their own personal circumstances.
People need to appreciate that changing their savings behaviour now could have a dramatic impact on how much they will be living on in the future. It will affect the type of home they live in, car they drive and where they will be able to go for their holidays.
However, getting people to take money out of their pocket today to benefit them in 20, 30 or 40 years’ time presents a significant challenge to overall employee engagement strategies and takes even deeper persuasion techniques.
Small businesses and start-ups therefore need a new approach. They need to consider the psychological processes that people need to go through before they make a big change.
A 5-Step savings process to change behaviour
We’ve developed a simple five step savings process that can be applied to the modern day office. It can be used to change employees’ financial behaviour over time and improve employee engagement.
What’s important for employers to realise in this process is that to change, people need to go through a mental journey to help them buy into the idea of saving – and at each stage of the process a different approach to communication is needed.
The 5 steps are;
The process begins with precontemplation – the stage when people are not ready to change or are unaware they need to change.
The second stage is contemplation, or the ‘getting ready’ stage. People are now thinking and planning a behavioural change but are still not ready to commit.
The third stage is the preparation stage. People have now formed an intention to act and will have a clear plan of what and how they want to change.
The fourth stage is action, the stage beyond just preparing to act, where people have now implemented an action to change behaviour.
The fifth and final stage, which is often the biggest challenge for employers, is maintenance. This is the crucial ongoing stage that maintains and supports the person’s actions.
Supporting staff to save
Saving for the future is an ongoing process, so it’s important people are supported throughout their journey to retirement.
Employers need to guide people through all these stages with tailored communications that bring pension saving to life and help them to understand their finances.
At the early stages we recommend financial workshops and one-to-one sessions and coaching, together with easy to understand, jargon-free literature to help build awareness.
Once people are ready for action, digital tools and online dashboards, along with regular news, tailored content and video can help them understand and visualise their retirement savings.
This approach can really help people become engaged with their savings on a regular basis. By showing people how their savings are growing and what kind of future this can mean people are compelled to save more.
Pensions are about the future, so communication must be fun, exciting and optimistic. These methods will help employees engage with their pensions, and ensure they are fully committed to increasing their savings – not opting out.
About the author
This guide has been exclusively written for ByteStart by Steve Butler, CEO, Punter Southall Aspire who recently launched Next Generation Savings – a new approach to workplace savings and pensions which includes an online savings portal, digital tools and financial education as well as the five-step model to help employers transform their workforce savings culture.
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