3 ways pension investments can drive employee engagement

External forces are impacting HR budgets but employers need to maintain their focus on employee engagement, says Steve Watson at NatWest Cushon.

This year, as businesses feel the strain of increased National Insurance contributions and a higher minimum wage, it’s become even more important to optimise your people budget.

That includes getting the best value out of the employee benefits you offer – particularlyworkplace pensions.

Employees, especially younger cohorts, are generally disengaged from their workplace pensions.

And without any meaningful return from your investment, in terms of employee satisfaction or retention, it can make your pension spend seem like a sunk cost.

But it doesn’t have to be this way.

For instance, in cases where pension engagement is improved, employees’ financial wellbeing and resilience also tend to improve, which can have a positive knock-on effect for performance at work.

So how can you help employees engage with their pensions and get the best value from your spend?

One possible solution is to consider a pension that invests in what we call private markets, especially UK private markets.

These are investments that the pension scheme makes outside of the stock market – things like private companies and infrastructure.

Those providers, like ourselves, who are signed up to the Mansion House Accord, are going to have private market investments and more specifically an allocation to the UK.

What’s so special about private market investments?

Private market investments not only generate better long-term expected returns; they’re engagement powerhouses – especially if they are UK based.

There are three big ways they make a difference.

First and foremost, their ability to connect with employees at an emotional level, potentially building a greater sense of ownership and pride in their pension.

1. Sparking interest by making emotional connections

For a lot of people, pension funds are usually pretty meaningless.

Fund names themselves can be hard to decipher and the investments within are often even more so; a collection of company names and assets that hold little personal relevance.

By contrast, when you help employees forge emotional connections with your workplace pension scheme – as in the case of private market investments – they’re more likely to engage.

Take, for instance, a low carbon pepper farm in Suffolk or a wind farm off the Lincolnshire coast.

These investments are easy to picture, their positive impact is easy to understand and feel proud of, and they even have a presence in everyday life – you could drive past one on the motorway or buy the produce in your local supermarket.

And people expect their pension to be invested in this way, especially in the UK.

Our own research shows that half (52%) of employees agree that pension funds should invest more in the UK.

This is great for increasing the use and appreciation of your workplace pension, but it goes deeper too.

Increased engagement means employees are more likely to take actions, such as increasing their contributions, which contribute to better financial resilience and better preparation for retirement and the future.

2. Making the leap to learn more about their finances

Getting more comfortable with their pension is a gateway to learning more about finance in general, the benefit of which shouldn’t be understated.

Financial literacy is low in the UK and the repercussions are widespread.

According to the FCA, 70% of the workforce spend a fifth of their working hours worrying about money.

That’s a lot of stress for employees to carry around. And it’s a lot of productivity time for a business to lose.

To mitigate these losses, pensions with private market investments are at an advantage.

They lower the barriers to entry by making pensions more approachable and appealing.

And when paired with a financial education program, they can help people see their savings in a wider context, learning to balance their future with shorter term financial priorities.

3. Creating a better world for employees to retire into

As well as providing the more immediate benefits of breaking down barriers and setting people off on a learning journey, private market investments introduce long-term quality-of-life benefits: they work towards creating a better society to live in when employees eventually retire.

This particular benefit has been given even more power this year, following the legal opinion we worked on with law firm Eversheds Sutherland.

Our new interpretation of the law gives pension trustees more flexibility, allowing them to allocate pension money to investments that could improve living standards in retirement.

For example, that could include better healthcare, social care, climate-adapted housing, food security and flood protection.

Like the private market investments themselves, these are all highly relevant and relatable topics that present countless opportunities to engage employees.

Ultimately, increasing engagement is the key to unlocking value in your workplace pension scheme.

Employees get more out of the benefit and consequently appreciate you more for providing it.

So at a time when employment costs are under the microscope, choosing a sustainable pension could be a smart move to make every penny work harder.