Let’s take care of their tomorrows so they will take care of today
There is a well-known saying that insanity is doing the same thing over and over and expecting different results. In promoting financial wellbeing – pensions in particular - that description has sometimes felt uncomfortably close to home when considering the question of how well employees engage with their pensions.
Since the dawn of defined contribution (DC) pensions in the 1990s, the approach has followed a familiar script: give people more choice, push more technical education, and measure ’engagement’ by how many employees make active decisions.
In the 2000s, success was measured through employees’ investment decisions. If an employee opted out of the default investment fund, it was celebrated. It was seen as a sign of ownership and financial sophistication. Yet a decade later the unintended consequences were seen of trying to educate everyone to be a trader.
Research from US DC plans showed that this kind of individual, active fund selection had, on average, cost savers around 1.9% per year in investment returns. On this evidence, staying in the default fund would give a 50% higher expected retirement income over a working life. In the pursuit of visible engagement, the very outcomes that were hoped to be improved, were instead undermined.
Shift in thinking
So there was a shift from education on investment choice to contribution levels. But even here, despite decades of campaigns and tools, eight out of 10 employees still say they do not know how much they need to save for retirement and three in 10 say they could save more if someone told them to. So what is going wrong?
Some claim the lack of engagement is because employees no longer value pensions. This is not true. Aon’s 2025 Employee Sentiment Survey showed that pensions remain the most valued UK benefit across all generations except Generation Y – and even they only put paid time off above it.
However, far from asking for more choice and control over complex retirement decisions, employees are asking for the opposite. The number one employee benefit expectation – key to financial wellbeing - listed by almost half of UK employees, is for their employer just to tell them how much to save for retirement.
The bright spot in the pension story is what happens when the system is redesigned to reduce the reliance on pension choices. Auto-enrolment is the obvious example. When the move was made from opt-in to optout, pension participation increased by 50%, 11 million people, in a few years. No pension choice or education strategy has ever delivered that kind of shift.
Creating passivity
The same pattern is seen when companies reduce the reliance on choice and education by increasing the employee default contribution rate. Where employers have introduced a realistic, default employee savings level, on average 90% of employees stick with the higher rate. By contrast, the average proportion remaining on the higher rate you might see from a standard communication campaign is significantly lower.
There is a fear that if ‘organisations ‘do it for people’ – through stronger defaults, clearer pathways and more guided choices – they will create passivity. In fact, we see the opposite. When employees feel their long-term security is being taken care of they are more likely to describe themselves as financially comfortable. And those who feel comfortable are more inclined to say financial education is valuable and to seek it out.
In other words, taking the anxiety out of long-term retirement planning does not reduce engagement; it frees up capacity for it. That matters because many of the most important financial challenges for employees are short term: managing day-to-day cash flow, dealing with debt, handling shocks and unexpected expenses, and balancing competing life goals.
Power of defaults
These issues are highly personal and much harder for an employer to introduce ‘defaults’ for. They are, however, a significant cause of stress, wellbeing and productivity challenges for employers.
If the power of defaults is used to solve better long-term outcomes – whether through higher default employee contributions or faster adoption of models like Collective Defined Contribution – energy can be redirected to help employees manage the financial decisions that organisations cannot and should not make for them.
With this focus there can be a redesign of how we deliver financial wellbeing support. The focus can shift from technical education to helping employees understand why they behave the way they do with money and what small habit changes they could make today to have an immediate impact on their financial wellness and that of their loved ones.
Rather than employee expectations for pensions saving having changed over the last 20 years, it is the pension industry that is now evolving to deliver more closely what individuals need to enhance their wider financial wellbeing.
If, via suitable defaults, we collectively take care of employees’ long-term financial security - their ‘tomorrow’ - they can have greater confidence to take care of the financial challenges they face today.
