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08 Apr 2022
by Maggie Williams

REBA inside track: Pensions engagement and the cost-of-living crisis: in tune or tone deaf?

National Insurance, council tax, energy bills, travel costs, water rates, and a whole host of other escalating everyday costs mean that most employees will be feeling the pinch over the next year, with more pain to come.  

Consumer Price Index (CPI) inflation is expected to peak at 9% in the last quarter of this year (the February 2022 CPI figure was 6.2%).  And the war in Ukraine means long-term uncertainty around energy costs that could affect us all for years to come.  Household incomes will be squeezed hard, with pay rises unlikely to keep pace with rampant inflation.

Perhaps this isn’t the best time to launch a pensions engagement campaign. Asking people to put away money for a far-off retirement when they are dealing with a pack of wolves at the door risks being tone-deaf at best, and actively contributing to employees’ financial worries at worst. 

The pensions industry boldly announced a national Engagement Season initiative this week. It is scheduled to launch in autumn this year, when inflation is projected to be at its highest and energy usage starts to climb as the nights draw in. Perfect timing or out-of-touch?

There are important reasons why pension saving should not get lost in the cost of living crisis. Cutting out retirement saving today will damage future living standards in retirement and exacerbate existing inequalities such as gender and carer pension gaps in the decades ahead.  Engagement Season’s plans to help people better understand pensions through dashboards, simpler benefits statements and the Retirement Living Standards, should help keep retirement savings relevant. 

But that has to be balanced against what employees need to survive today. Engagement Season’s messaging will need to be exceptionally sensitive if it is to achieve its goals and remain in tune with savers’ current needs.  

The same applies to employers’ financial wellbeing strategies. The current crisis is an opportunity for employers to listen to employees and create an inclusive strategy offering appropriate, timely help.  That, in turn, will built trust in benefits and communications. Employees will see their employer as ‘on their side’ and offering benefits that are right for them. That, in turn, should make pensions communications more effective when the time is right to issue them.    

We see that REBA’s members are keen to ease the burden of everyday costs such as fuel bills and broadband subscriptions, and there may be opportunities to help with retirement saving too. For example, pensions are one of the few employee benefits that can still make use of salary sacrifice, helping to mitigate National Insurance rises for both employers and employees.

Pensions will always be the best way to build retirement savings, because of the tax advantages and shared contributions between employers and employees. But if pension contributions really are too much for employees to manage at present, then helping them to save even a little in other more manageable ways might be better than not saving at all.

At some stage in the future, the cost of living crisis will start to ease. When employees feel sufficiently confident in their finances again, helping them return quickly and easily to pension savings if they have left the scheme, will make sure the effect on their long-term financial wellbeing is limited.

The coming months and years will put financial wellbeing centre-stage, with many employees having to make difficult decisions about their money and lifestyle. To keep pensions relevant alongside other exceptional demands on employees’ finances needs sensitive communications and an approach to financial wellbeing that puts the focus on coping today without forgetting about the future.

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