Auto-enrolment (AE) has been incredibly successful. It was first introduced in 2012 when the largest employers had to start offering a workplace pension to their employees. Since then 10 million people have been auto-enrolled into a workplace pension. And opt out rates have remained low with around 90% of people continuing to save. But on 6th April 2019, there are big changes coming to AE. For the second time in 12 months minimum contributions are rising. In 2012, contributions were set at 2% of an employee’s earnings. That was typically split by 1% from the employer and 1% from the employee (including tax relief).
In 2018, contributions increased for the first time to a total of 5% – with employers normally paying 2% and employees 3%. Now it’s rising to 8% – 3% from employers and 5% from employees. There’s no hiding from it, this is a big step up, for employers and their workforce. But if people are going to be financially better prepared for their retirement, contributions have to rise. Ultimately, the decision to continue saving is down to the individual. So below you will find three tips for getting your employees enthused about pension saving. But first, what about businesses? Employers have no choice when it comes to AE. Offering a workplace pension is the law. But there are a lot of positives that come from putting some effort into communicating the benefits of workplace pension.
In a recent survey* carried out by Aviva, 78% of employed people said a company pension would be an important or very important consideration if they left their current job and moved to a new employer. Only 6% of people said it was not important at all. Our research also found that the amount an employer will contribute into a workplace pension is a big consideration for those looking for a new job. 82% of workers said if they were looking for a new job, the amount a company would pay into their pension was important or very important. AE has increased the awareness of the importance of pension saving. Employees now want to know what an employer can offer beyond just salary. Businesses which publicise their workplace pension and offer increased employer contributions can stand out from the crowd in a competitive marketplace for talent. So, what about that talent? How can you make them fully appreciate this really important benefit that their company is part-funding.
Make it all about them
While our research I mentioned earlier shows a large proportion of employees are interested, it saddens me to say there are people out there who think pensions are dull. Unbelievable, I know! In fact, our Retirement Reality report found that 1 in 6 people said they were prevented from discussing pensions because they didn’t want to appear boring.
To get over this, it may be useful to appeal to their self-interest by making them aware of the following:
- The company they work for is paying into their pension. If they opt out of their workplace pension, they don’t get this money
- The government pay into their pension through tax relief. It means every £80 they save will be topped up by a further £20
- The money is theirs – not their employer’s, the government’s or their pension provider’s. Many people don’t realise this. They can watch their pot grow over time and at age 55 they can access their savings
- The basic state pension isn’t much to live on – around £164 a week or £8,500 a year
Communication is key
A colleague of mine used to work in radio. He told me that when presenters were being trained on how to get their audience’s attention they were instructed to “Tell them what you are going to tell them. Tell them. Tell them what you just told them.”
I think that works pretty well when it comes to workplace pensions. People may not get it the first time. They may not get it the second time either.
But making sure they do get it is important. The last thing anyone needs is a shock when they check their payslip at the end of April and their pension deduction is larger than it was in March.
It’s worth speaking to your pension provider about what materials they have available for talking to employees about the increasing contributions. Most providers are only too happy to help employers communicate the benefits of a workplace pension.
Get them thinking about retirement
For many, retirement is a long way off. But there is no harm in encouraging people to think about what they want their life to be like.
In our Retirement Reality report, almost half of people said they would like to travel when they give up working. But 1 in 4 people also thought their retirement was likely to be a financial struggle.
There are tools available that can help people model how much they might be able to save and what that might look like as an income in retirement. There are even tools like Shape My Future that will let people choose what kind of lifestyle they would like and then show them what they need to do to achieve that goal.
Setting a target or having something to aim for can give retirement saving a purpose and make it more real. People can start to see the tangible benefits of staying in their workplace pension scheme.
This also has benefits for employers. There is no longer a default retirement age. People are free to work for as long as they want to or need to. While experience is vital to any business, putting people in a position where they can choose to retire rather than drag themselves into work every day is probably better for the employer and the employee.
Increases to AE are necessary. Final salary pensions are a thing of the past for most and average life expectancy is around 83 for men and 86 for women**. People need to save if they are going to have a better chance of a decent standard of life in retirement.
But communicating it well and helping your employees to understand the benefits can make AE a win for businesses and your workforce.
1,279 employed people aged 22+ were surveyed by Censuswide on behalf of Aviva, January 2019