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How to help employees make the most of their biggest benefit
A recent study by the Institute for Fiscal Studies revealed that 90% of people in their 30s and 40s are not saving enough towards their pensions. While a workplace pension is mandatory for all companies, many do not provide enough support to maximise their employees’ savings potential.
The minimum auto-enrolment pension contribution is 8% of qualifying earnings, split between employees paying 5% (including 1% tax relief) and employers paying 3%, but industry experts have long argued that this basic contribution is not enough to ensure people have a comfortable retirement.
A recent government report also highlighted that most pension savers’ engagement with pension products and financial literacy is low. Attitudes to pensions were characterised by detachment, fear and complacency, which acted as a barrier to engagement. The report suggests that to encourage people to engage with their pension, they need to be able to understand what their savings mean for their future and the effect that changes could have.
Employers can play a key role in driving understanding and engagement by providing financial education, tailoring guidance to their workforce and providing tools to help employees navigate market volatility and reach their retirement goals.
Engagement challenges
The cost-of-living crisis is a key issue that could affect savings as it is focusing people on their immediate financial challenges rather than on long-term saving. Media headlines have suggested that thousands are stopping pension payments, but in our experience, little has changed in terms of pension contributions since the Covid-19 pandemic began.
Despite this, there is a significant gulf between the savings of low and high earners, highlighting the importance of employers understanding their workforce and providing tailored retirement guidance.
Another challenge for employers is helping their workforce understand pensions during times of market volatility. For example, last year’s disruption in the UK economy following then Prime Minister Liz Truss’ disastrous mini-budget caused a major issue for UK pension funds, leading to the Bank of England stepping in.
During these times, it is important to educate employees on how pension investments work and to stress they are designed for long-term growth, not short-term fluctuations.
Employers have a unique opportunity to be a trusted voice and cut through the jargon and negative headlines by helping improve employees’ understanding of pensions and finances. By providing clear communication and retirement education, employers can navigate the challenges of pension engagement and influence the retirement outcomes of their workforce.
Find what support works best
Effective education about all aspects of financial wellbeing, including workplace pensions, is crucial to engaging employees and help them make better financial decisions. Research shows that supporting people in understanding and managing their day-to-day finances helps them feel more confident about their future finances.
It is also important for employers to offer targeted support based on the demographics of their workforce, as assumptions can be incorrect. For instance, high earners may not necessarily have a strong level of financial knowledge and may benefit from access to financial advisers to help them understand what tax savings they could make and to save. On the other hand, lower earners may benefit from financial education on budgeting, managing debt and salary sacrifice.
Employers could consider a range of methods – from signposting financial support on the company intranet to face-to-face sessions, catering to different learning styles and preferences. Financial education should not be a one-off conversation, but a structured approach offered throughout an employee’s career to drive empowerment and confidence.
There are free resources, templates and webinars or videos available through insurance, benefit, and pension providers.
At Howden Employee Benefits & Wellbeing, we can help employers make the most of these resources and offer guidance and support in putting together a robust financial education strategy. Our pensions team can also help with setting up a scheme, conducting reviews and ongoing governance, and engaging with employees post-implementation.
Overall, financial education is a valuable benefit that can make a real difference to employees’ lives now and in the future.
Supplied by REBA Associate Member, Howden Employee Benefits
Howden provides insurance broking, risk management and claims consulting services, globally. We work with clients of all sizes to provide dedicated employee benefits & wellbeing consultancy.
