Employers must improve pensions awareness amongst their workforce to prevent people opting out of company pensions, as minimum auto enrolment contribution rates are set to rise from 6 April 2018, says Steve Butler, CEO of Punter Southall Aspire, a workplace pensions and savings company.
The auto enrolment minimum rate increases from 2% to 5% of qualified earnings. Employers will pay at least 2%, with the remainder paid by the employee. Currently, employees only need to pay 1% so this represents a notable increase in their contributions. This minimum rises again on 6 April 2019 to 8%. Employers will then pay at least 3% and employees the remainder.
“For many employees, particularly those on tight budgets, this may be a bitter pill to swallow, especially if it comes as a surprise. A 2% pay cut can throw monthly budgets out of kilter and make it harder for people to afford things they want and need – rent, holidays or even new shoes for their children.
“Given the choice between less money in their bank account today, and more money in 30 or 40 years’ time, some employees will want to leave their pension scheme. To help prevent this, employers will need to step up their communication about the importance of savings and pensions to enable employees to understand the potential consequences of opting out and make informed decisions about their financial future.”
“Unfortunately, many employers simply aren’t approaching pensions communication in the right way, mistakenly believing that simply telling people to save more will change their behaviour. This doesn’t work, they need a fresh approach,”
To improve pensions communication and engagement, Punter Southall Aspire suggests a five-step model to change thinking and behaviour.
The five steps are the psychological processes that people need to go through before they make a big change.
1. Precontemplation – the first stage when people are unaware they need to make a change
2. Contemplation – people are planning to make a behavioural change
3. Preparation – people have an intention to act
According to Butler,
“Employers need to consider the best way to communicate at every stage. In the early stages, presentations, financial education events and one to one sessions and coaching, together with simple, engaging and jargon-free literature will build awareness.
“Once people are on board, then digital tools and online dashboards that depict savings, as well as regular news, tailored content and video will enable people to engage more with their retirement savings. Showing people how their savings are growing and what kind of future they will have could compel them to save more.”
“Pensions are about the future, so communication must be fun, exciting and optimistic. While you can’t prevent all opt-outs, having a clear employee engagement plan supported by strong communications, ensuring employees understand and accept the changes and have time to make any financial adjustments, should keep opt-outs to a minimum.”
Punter Southall Aspire recently launched Next Generation Savings – a new approach to workplace savings and pensions which includes an online savings portal, digital tools and financial education as well as the five-step model to help employers transform their workforce savings culture. For more information visit www.psaspire.com