Workplace pensions engagement isn't a 'nice-to-have', but a fundamental to helping employees plan for later life

Offering high-quality workplace pensions is critical to successful businesses and retirements, but more workers and firms need to ‘open their eyes’ to the benefits of pensions and be alert to the risks of failing to engage.

In a new survey of businesses of all sizes, the CBI and Aegon argue that a ‘quiet pensions revolution’ is taking place with auto-enrolment at the forefront of private pensions investment. Businesses are investing heavily – 92% of firms surveyed were contributing above the statutory minimum level requirement for auto-enrolment (AE) schemes, currently 1% for employers, rising to 3% by 2019, with estimates that £133bn will be paid into workplace pensions in the 2019/2020 tax-year – but much more can be done by firms that will ultimately help them to realise their business value and also recruit and retain staff.

• Many workers also recognise the value of saving into a workplace pension – across two-thirds of businesses only 5% or less of eligible workers have opted out of AE and 69% say a firm’s pension scheme is an important factor when looking for a new job.
• But although nearly half of businesses (47%) believe that recent pension freedoms have led to employees being more engaged, there remain major gaps by age, income and employment status/length of service: those aged 50+ are almost twice as likely as (87%) those under 34 (48%) to be engaged with their pension;
• Those workers on a higher wage are significantly more engaged (87% of those earning £45-75k are engaged) than those on lower wages (only 33% of those earning less than £13k are engaged) and 7 in 10 of employees of more than 10 years are engaged with their pension, while younger people with other financial priorities are engaged far less.

Neil Carberry, CBI Managing Director, said:

“Businesses are contributing billions to their workers’ pensions each and every year, playing their part in a quiet pensions revolution with auto-enrolment having a growing influence over workplace saving.

“While many businesses rightly recognise the positive effect that their investment in pensions can have on recruiting and retaining staff, others need to open their eyes to grasp the opportunities in front of them. Engaging better with your workforce on pensions is not a ‘nice-to-have’ but absolutely fundamental to the success of workplace pensions schemes and well-funded retirements for workers.

“Although many firms do a great job, there’s an awful lot more that can be done to get staff engaged in their financial futures and to gain a better grasp of retirement planning. Many younger workers, those on lower incomes and employees who have been at a business for a short period are not getting the support they need to get to grips with issues that will help determine a successful path to when they retire.

“Businesses are up for the challenge - nine in ten firms we talked to felt a responsibility to better engage employees with their pension schemes. Some businesses are already leading the way – over half have a strategy in place for securing greater pensions engagement.”

A principal barrier to engagement, reported by 59% of firms, is employees diverting money away from their pensions due to other financial priorities, emphasising the need to support staff to manage saving alongside living costs and any debts they have. The same proportion cite a lack of awareness among employees of the importance of saving for their retirement. Firms also cited challenges around having insufficient resources within their business to communicate with employees about pensions (24%), as well as uncertainty about where to find high-quality advice for staff.

So what can businesses do?

There are a number of factors that firms believe can help influence employee engagement on pensions:

• Educating staff about the benefits of saving through workplace pensions (66%) and wider financial education (58%)
• Use simpler language and minimise jargon in pension communications (63%)
• If used appropriately, technology can be a valuable aid to communication and engagement (54%)
• Individualising pension communications as far as possible (49%).

Such factors manifest themselves in the engagement work that businesses are carrying out:

Pensions often form part of an employee’s induction process (63%), many firms include guidance from an external provider (60%) and sign-post staff to publicly available pension guidance (54%). There is also a push from businesses to make use of technology, with 51% offering a digital information portal for staff and 49% delivering in-house webinars/seminars.

Paul Bucksey, Managing Director, Aegon Workplace Investing said:

“Pensions are a big financial commitment for employers but this investment often goes underappreciated. A workplace pension is part of an employee pay package.

“The challenge is for businesses to help their employees recognise this. Engagement is the key to changing behaviours and helping employees achieve long term financial security. When an employer gets behind their scheme and encourages the workforce to take action, engagement levels rise.

“Some employers are already going the extra mile to support their workforce in getting their pensions on the right track. But what remains clear is that whether you choose to hold roadshows, workshops or webinars, offer online financial planning tools or workplace financial advice, you need to do it regularly, as part of a wider financial awareness strategy.

“From recruitment to retirement, long-term planning and regular action will help your employees reach a point where they can afford to retire.

“Ultimately, a workforce that can’t afford to retire presents employers with some new challenges around succession planning and managing an aging workforce. Better pension engagement from your employees will help you plan ahead to continue to grow and adapt your business.”

Other key statistics:

• More than two in five businesses (42%) report that that their ability to recruit has been improved by their pension scheme
• Pensions are equally important in fostering employee loyalty. More than two in five businesses (42%) report that pension provision has a positive impact on employee retention
• A firm’s scheme can play a valuable role around succession planning by helping employers to forecast and manage the retirement of key staff (29%). More businesses need to be aware of the positive impact that pensions can have in this area.
• Firms recognise more needs to be done with only 12% of respondents happy with current levels of employee engagement
• Firms strongly believe that improved employee engagement with pensions would lead to greater benefits. 55% think that stronger engagement would improve their ability to either retain, recruit or carry out succession planning.
• 44% think improved employee engagement would lead to them better being able to retain, whilst 36% think it would have a positive impact on recruitment.

Notes to editors:

Data for the guide was collected in the Autumn of 2017. Research was conducted in two parts: A survey of 189 participants from a mix of small to large businesses and across all industry sectors (2nd - 20th October 2017); and 15 in-depth interviews with participants from a range of business sizes and sectors (30th October - 24th November 2017).

Almost 25% of survey respondents were micro, small or medium-sized businesses reflecting the requirement for all existing employers to automatically enrol staff into a pension from 2017 onwards. Interviewees included a mix of pension technical specialists, reward managers and respondents from the boardroom to proves insight into the understand of pensions engagement levels.