How to align pensions provisions with a wider benefits strategy

Target

Need to know:

Pensions should be positioned as a vital part of an overarching benefits package, rather than a separate and often distant concern.
Employers should package pensions within a wider financial planning provision, promoting it alongside a range of other benefits that can help employees with short- and long-term stability.
Focusing on outcomes and goals, and how benefits can help employees achieve these, will engage staff who might otherwise not have felt the value of certain provisions.
Increased autonomy with regards to choosing benefits should be met with education and communication to avoid pensions being forgotten.

Given the UK's current volatile political landscape, it may be sensible to approach government pronouncements, or at least the chances of them becoming reality, with a degree of caution. Nevertheless, the announcement in the Queen’s Speech of an upcoming Pensions Bill, which will include a focus on the much anticipated dashboard, was broadly welcomed in October 2019.

Steve Cameron, pensions director at Aegon, says: “This offers a huge opportunity to help millions of individuals better engage with retirement planning, understanding if they are on track for the retirement they aspire to and, if not, to take action accordingly.”

To truly engage with retirement savings, though, employees need not only to understand all the details of their schemes and pots through a dashboard, but see pensions as a vital part of their wider reward package, understanding the role retirement savings play in the overall employee experience.

Financial package

Rather than allowing benefits to stand alone in silos, employers should consider which other products can be packaged together with pensions to create an overall later life provision.

For example, an organisation might work to highlight the links between group risk benefits and pension schemes, says Martin Parish, area director at Aon Employee Benefits, “I don’t think many employees view death-in-service as a financial wellbeing initiative," he explains. "They just see it as something they get. But if someone is filling out a nomination of beneficiary form for their pension scheme, [that is] also an opportunity to review [whether they have] got the right sort of life cover in place.”

This approach might also incorporate, for example, private medical insurance, income protection, will planning, and even dental and optical cover, all of which can form part of a holistic financial planning package, says Jeanette Makings, head of financial education at Close Brothers.

Moving away from a view of pensions working in isolation, towards a sense of it as part of a wider approach to financial stability, can be combined with data analysis to highlight those moments where pensions might not usually be considered relevant.

“Perhaps employees are using a discount shopping portal through the workplace, so they might be saving £50 a month," says Parish. "What are [they] doing with that saving? Is that being allocated anywhere else, perhaps towards additional voluntary contributions? [Employers] can’t obviously force people to do anything, but it is about giving people the opportunity to understand that, 'if you’re saving here, what else can you do with it?'”

Focus on outcomes

A recent focus for employers is not simply on the benefits on offer, but rather the employee's ultimate objectives, and how these can be met by a reward package, says Mark Pemberthy, head of defined contribution (DC) and wealth at Buck.

“Rather than saying, ‘here is a private medical insurance plan’ or ‘here is a pension scheme’, the communication and education is ‘here is how we can help you improve your wellbeing or how we can help you protect your family’," he explains.

“It is more about talking about things in an understandable and human way, and helping to align the services and products that sit underneath that with the more real-life objectives that people might have.”

Linking pensions, alongside other more immediately relevant benefits, into a wider narrative about their ultimate combined impact on an employee's financial and life goals, may help less engaged staff to visualise the true value of saving for retirement.

Jonathan Watts-Lay, director at Wealth at Work, adds: “The underlying products [should be] presented to [employees] as part of how they achieve [their] objectives, rather than at the moment, where the products are much more prominent.

"That, for us, is how organisations will be able still to provide really rich and valuable reward environments, but presented to employees in a way that means they can get the most out of that benefit package for their own specific circumstances."

The employee life-cycle

Pensions are a vital component in a benefits package, but this value needs to be clearly communicated to employees. Older methods of providing impersonal, blanket communications are no longer fit for purpose, says Watts-Lay.

“It used to be, ‘here’s a link to the intranet or a leaflet that has got some information on pensions’," he explains. "The problem with that was that it did not matter if [the employee was] 20 or 60, [they] were given the same information."

Now, the focus is much more on segmentation and personalisation. For younger workers, this could mean focusing financial education around the value of joining a pension scheme in the first place, while also placing equal emphasis on budgeting and debt management tools, putting pensions into the wider context of building to long-term financial stability.

For mid-career workers, the priority might then shift to understanding what they have accrued thus far versus their retirement expectations, as well as tackling other elements of financial security, such as getting on the housing ladder. For older workers, employers should refocus again onto the best ways to maximise savings and make the most of a retirement income.

Thus, education and communication around pensions can change over time, and boost engagement by picking up on different, related elements of the benefits strategy as, and when, they become relevant.

Engaging with decisions

As the drive for autonomy increases, many employers are opting to provide a pot of money which employees can spend as they see fit, for example on wellbeing activities, or additional pension contributions.

For this to be effective, and to be sure pensions are not forgotten in favour of more immediate prospects, a great deal of education is needed, integrating pensions into a wider benefits strategy and encouraging employees to continually reassess their choices as their needs and situations change.

This encompassing approach may also help to facilitate an understanding of the long-term picture among individuals who might be disengaged from pensions early in their career, due to more pressing needs steering them towards more immediate benefits such as everyday savings.

Makings says: "Many employees traditionally used to see pensions as something ‘dealt with’ by their employer, but there is now recognition that, even if they are being auto-enrolled, it’s their money, [and] they need to know what’s happening.

“That’s a fundamental difference with a [DC] pension: from day one there are decisions to be taken, and those primarily have to be by the employee. There is a lot more need to equip employees with the right information, guidance and support to enable them to make those decisions.”

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