Pension reform can be a benefit, not a penalty

Auto-enrol­ment can, at first glance, look like just anoth­er admin­is­tra­tive and finan­cial bur­den on the shoul­ders of employ­ers. But with enrolling staff into a com­pa­ny pen­sion scheme now a legal oblig­a­tion for many employ­ers, shouldn’t firms make a virtue of the process by turn­ing this com­pul­sion into a com­pelling work­place ben­e­fit that helps dis­tin­guish them from their peers?

The dilem­ma for employ­ers is whether they should do the legal min­i­mum and no more or get behind the process, in the hope that engag­ing staff with their new pen­sion will help with recruit­ment, reten­tion and moti­va­tion.

Richard Smith, senior man­ag­er at Price­wa­ter­house­C­oop­ers, points out that pen­sion con­tri­bu­tions will be val­ued less by low­er income groups, because a greater pro­por­tion of their income in retire­ment will be giv­en by the state, and also by young peo­ple who have oth­er pri­or­i­ties.

Employ­ers should tar­get any addi­tion­al spend­ing above the legal min­i­mum at those who will per­ceive it as valu­able

“We would chal­lenge the con­ven­tion­al think­ing that pen­sions always recruit, retain and moti­vate,” he says. “They might do for some staff, but not all. So employ­ers should be look­ing to tar­get any addi­tion­al spend­ing above the legal min­i­mum at those who will per­ceive it as valu­able. These tend to be mid­dle and high­er man­agers.”

That said, a look at some of the very largest employ­ers in the first wave of auto-enrol­ment reveals organ­i­sa­tions in the same sec­tor tak­ing very dif­fer­ent approach­es to the pen­sion they have offered, depend­ing on their pater­nal­ism and core val­ues.

“In the super­mar­ket sec­tor we have seen Tesco opt for a defined ben­e­fit career aver­age scheme, Asda and Sainsbury’s go for a defined con­tri­bu­tion scheme, and Mor­risons opt for a cash bal­ance scheme sit­ting some­where between the two,” says Mr Smith.

What­ev­er approach employ­ers take, effec­tive com­mu­ni­ca­tion of ben­e­fits is key to max­imis­ing the val­ue in terms of how they are per­ceived by employ­ees. But mis­trust of pen­sions, par­tic­u­lar­ly among the auto-enrol­ment tar­get group, means clear mes­sages are essen­tial.

“Many peo­ple have per­ceived the idea of deduc­tions from their pay pack­et as a tax,” says Ann Fly­nn, head of work­place mar­ket­ing at Stan­dard Life. “But many of these peo­ple were unaware about the employ­er con­tri­bu­tion and the tax break that comes with it. They were also unaware that it is their mon­ey and not part of some scheme that could dis­ap­pear. By giv­ing employ­ees sim­ple mes­sages about what pen­sions actu­al­ly are and con­fronting some of the neg­a­tive pre­con­cep­tions asso­ci­at­ed with them, engage­ment can be sub­stan­tial­ly improved.”

Matt Waller, chief exec­u­tive of ben­e­fits firm Bene­fex, points out that many of the peo­ple being auto­mat­i­cal­ly enrolled into pen­sions do not have com­put­ers at work or home. “For them, their phone is their prin­ci­pal, if not only, source of inter­net access,” he says. “So mobile-enabled web­site mate­ri­als are an increas­ing­ly sig­nif­i­cant part of the com­mu­ni­ca­tion process.”

Ms Fly­nn sees giv­ing employ­ees a sense of empow­er­ment as key to suc­cess­ful engage­ment. “It is impor­tant to make peo­ple feel like they are in con­trol,” she says. “And this means actu­al­ly mak­ing it easy to opt out. If you do not, peo­ple will feel trapped. But you can still give them an ‘are you sure?’ mes­sage, explain­ing what they are miss­ing out on, if they do opt to leave.”

Alas­tair McQueen, pen­sions mar­ket­ing man­ag­er at Avi­va, says his company’s research sug­gests some 95 per cent of employ­ees do not feel com­fort­able with the con­cept of work­place pen­sions. “Edu­ca­tion needs to be very basic, focus­ing on key sim­ple mes­sages, such as the fact that the only choic­es we have are to save more, work longer or retire poor­er,” he says. “Empow­er­ment then involves pro­mot­ing the tools and online cal­cu­la­tors offered by pen­sion providers that allow employ­ees to engage with their pen­sion fund, see how it is per­form­ing and see how chang­ing when they retire, and how much they put in, can change their retire­ment out­come.”

Tech­nol­o­gy means these mes­sages can be spread cheap­ly through a wide range of media, from apps to texts to email alerts to posters. The Depart­ment for Work and Pen­sions and The Pen­sions Reg­u­la­tor both have a wide array of free com­mu­ni­ca­tions mate­ri­als on their web­sites.

Pro­mot­ing “pen­sions cham­pi­ons” in the work­place is a fur­ther way of boost­ing under­stand­ing and appre­ci­a­tion, adds Mr McQueen. “Indi­vid­u­als select­ed for detailed infor­ma­tion ses­sions, either cho­sen because they lead teams or by ask­ing for vol­un­teers, can become pow­er­ful walk­ing advo­cates and explain­ers of how auto-enrol­ment can ben­e­fit employ­ees,” he says.

Auto-enrolment can, at first glance, look like just another administrative and financial burden on the shoulders of employers. But with enrolling staff into a company pension scheme now a legal obligation for many employers, shouldn’t firms make a virtue of the process by turning this compulsion into a compelling workplace benefit that helps distinguish them from their peers?