Workplace pensions have changed, but have you?
The workplace pension has been an ever evolving beast, changing rapidly. Defined contribution (DC) schemes are now far more widely used than the older defined benefit plans.
Change has been rife, with more emphasis on freedom and choice, as well as the reduction of the lifetime allowance, and auto enrolment now almost at completion stage.
With economic uncertainty and political upheaval affecting long term growth rate, the workplace is an even more important source of retirement saving. As an employer, you need to consider how workplace pensions are meeting the needs of your changing workforce. Is there consideration of individual circumstances, and effective communication to help drive better understanding of your employees’ options?
How much do your employees know about their pension?
The original focus of DC plans was all about what was going into the scheme and not what was coming out. This was coupled with little engagement with employees on how their money was being invested, or what investment was really needed in order to see the kind of results they hoped for on retirement.
This has resulted in:
- 91% of employees in a DC scheme don’t know where their funds are invested1.
- Only 23% say they are in control of their pension saving2.
- The World Economic Forum says contribution rates should be 10%–15%3, but the average contribution in the UK is just 4%4.
How can DC schemes evolve to meet employees’ needs?
When you look at your employee base you are likely to have a variety of levels, be that age, seniority or salary. Younger staff may not look at investment the same way as someone nearing retirement. Their outgoings may be completely different, or they may only be able to afford to sacrifice a lesser amount due to financial strain. Whatever the circumstances, it pays to tailor your scheme to your employees as personally as possible.
Not only will this drive employee engagement, but it‘ll also encourage more active involvement in the decisions that’ll affect their financial future.
So what can you do?
As we have touched upon there are a number of ways to achieve the right balance, consider the following tips in order to achieve this:
- Ensure your DC scheme is based on adequate savings and contributions. Educate your employees on what they will need at different stages in their career in order to hit their target retirement income.
- All DC schemes should have appropriate investments and levels of risk, one level doesn’t suit all and they should be reviewed regularly with employees.
- Engage with your staff on a personal basis, ensuring there is plenty of opportunity to speak to a qualified adviser about their pension and about what works best for them.
- Base communication on relevance to the individual, this will improve engagement, and employees will feel more valued.
- Consider different mediums of communication, sometimes an email will be overlooked, but if you were to offer an on-site financial education course, this could prove more popular and demonstrate your commitment to your employees.
- Give employees a variety of options when it comes to investment. For example, could the company 6% contribution be split into a DC pension and an ISA? Some employees may prefer to save for retirement this way. With statistics like 58% of employees preferring to reduce the value of some benefits they receive, and increase the value of others (70% for 18–34 year olds5), it makes sense to offer alternatives.
More than anything, it’s about people. Making sure that as an employer, you are offering employees something that is in their best interest for the future, but that also suits their current circumstances and needs.
 DECTECH. Damage by Default: The Flaw in Pensions Auto Enrolment, 2017
 Hymans Robertson, 2015
 World Economic Forum, We’ll Live to 100 – How Can We Afford It?, 2017
 Office for National Statistics. Occupational Pension Schemes Survey, UK: 2015, 2016
 Mercer. Inside Employee’s minds, 2014
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