Need to know:
- Pension scheme positioning does not just enhance the employee value proposition (EVP) at the point of recruitment, but should be a factor in the entire employment life cycle.
- For a pension scheme to attract and retain talent, its contributions need to be more generous than the minimum set by the government.
- Wider savings and benefits are becoming increasingly important as employers look to improve their overall financial wellbeing packages, including pensions, and offer greater flexibility.
When introduced in 2012, pensions auto-enrolment opened the door to retirement savings for millions of workers who would not have previously considered this option until it was too late.
Now, with employees ranking their workplace pension scheme as the most important benefit when accepting a new job, according to a survey by Portafina in January 2019, this could be a key differentiator in talent acquisition and retention strategies, depending on how it is positioned in the employee value proposition (EVP).
Andrew Partridge, senior communications consultant at Aon, says: “Focusing on pensions as part of the EVP can help employers improve the experience for workers throughout their employment and beyond. Many employers focus on attracting and recruiting the best talent, and having attractive pensions can help here. Flyers to promote pensions, and videos shown at inductions, can be powerful, especially as joining is a key time for members to make decisions.”
Positioning pensions
Pension scheme positioning does not just enhance an organisation’s EVP at the point of recruitment; ensuring that engagement efforts are ongoing can be a key element in retaining employees over time.
Rachel Meadows, head of pensions and savings at Broadstone, says: “Employers increasingly recognise that, having gone to significant efforts to attract talent in the first place, and then often investing years of training and development, the last thing they want to do is start losing staff once they hit peak value and usefulness to the business and wider team.”
For staff ascending the career ladder, becoming senior and highly paid, creative and flexible approaches to pension saving are essential, because these individuals are more and more likely to be caught by restrictions, such as tapered annual allowances.
“While this issue has received a lot of press due to its impact on the NHS and doctors, we are increasingly diagnosing this as an issue in the private sector,” Meadows explains.
“Helping valued staff negotiate various tax thresholds and efficiencies to their advantage can pay huge dividends in employee loyalty, and leave them more money in their pocket for the same cost to the business.”
The importance of pensions within an EVP also extends to employees who eventually leave, because it helps to ensure that they continue to speak highly of their former employer. “Pensions naturally are a good fit here, because they stay with members beyond leaving [the employer] and can help engender continuing goodwill as they talk to friends in the same sector,” says Partridge.
Competitive benefits
Every employer now provides a pension, but if an organisation wants to ensure its scheme is a benefit that will proactively help it to attract and retain talent, it must find ways to differentiate its offering from its competitors’.
First, it needs to be more generous than the minimum set by the government, says Mark Pemberthy, head of defined contribution (DC) and wealth at Buck. In addition, pensions should be offered alongside complementary vehicles that cater to diverse needs.
Buck’s research, DC pensions: What is the point?, published in April 2019, found that 38% of employers now want to implement workplace savings alongside a pension scheme, either for higher earners facing limitations to their pension savings, or for the wider workforce as part of a holistic approach to financial wellbeing.
“New generations of talent may have higher financial priorities than retirement, so progressive employers are providing flexibility in workplace saving by offering individual savings accounts [Isas] and lifetime Isas [Lisas] alongside pension schemes, to have more reward impact and appeal with younger audiences,” says Pemberthy.
“We are seeing more employers implement workplace savings solutions alongside their pension scheme as a way of differentiating themselves from competitors.”
This approach allows staff to divert some of their pension contributions into Lisas and boost saving for a deposit on their first home, or into an Isa for wider financial objectives.
Donna Walsh, head of customer and workplace proposition management at Standard Life, says: “Some of our employer clients offer a flexible spending pot, where employees can choose to redirect contributions above the auto-enrolment minimum into another savings vehicle, or to repay their student loan.”
Showcasing value
Many employers are already electing to pay above the minimum contribution of 3%, even pledging to match employee contributions.
Jamie Smith-Thompson, managing director at Portafina, says: “Employers could choose to make their pension offering more attractive by agreeing to base their contributions on an employee’s full salary, rather than their qualifying earnings. They will have more in their pension pot when they come to retire, which, ultimately, could make a significant difference to their standard of living.”
Those organisations that do enhance their contributions cannot assume that this will instantly have a positive impact on engagement. Employers must work to ensure that this investment on their part is used to its full effect, and that employees understand the value.
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