A quality pension is still a vital recruitment and retention tool, says Jennifer Paterson
Over the past 10 years, respondents’ view of employer-provided pensions has not changed much. The top three statements with which employers identify most has not changed in this time, although the order in which they appear has varied slightly. This demonstrates the importance employers place on workplace pension schemes, despite the benefit’s complexity for many organisations.
As the economy improves, it is perhaps not surprising employers continue to regard pensions as a valuable recruitment and retention tool. As jobs open up once again and employees look to become more mobile, a good pension scheme can help an employer position itself as a desirable place to work.
The vast majority (91%) of respondents believe the government holds the most responsibility for encouraging staff to save for retirement. However, 82% recognise that accountability also falls on employers. In many cases, employers may work in conjunction with the government or staff to achieve this aim – as will occur when the Pensions Act 2008 is implemented between 2012 and 2016 bringing in auto-enrolment and compulsory employer and employee contributions (which will be phased in over several years to reach 3% and 4% respectively). Employees will have the option to opt out, however employers will not.
With employees spending a significant portion of their time at work, employers are ideally placed to communicate pension benefits to staff as a captive audience. This can help to overcome issues such as apathy, lack of understanding and a lack of awareness.
Going one step further and offering access to independent financial advice can help employees to identify how they can make retirement provision based on their own individual circumstances. This helps to overcome affordability issues and other financial demands or interests – the top two reasons why respondents feel some staff do not join their pension scheme.
Actively encouraging pension scheme membership and ensuring employer contributions are adequate still rank as two of the most popular ways to ensure staff make adequate retirement provision. What is perhaps more telling is what respondents believe they should be doing to ensure staff have an adequate pension, but currently do not. Just under half (48%) said they should include pensions as part of total reward statements, while 45% felt they should auto-enrol staff. although employers will be required to auto-enrol staff under 2012’s reforms as they stand, 37% felt it was not their responsibility to do so.
Considering how much it costs employers to provide a pension scheme, it is surprising that 62% of respondents do not measure their return on investment (ROI) and only 5% intend to begin doing so in the next 12 months.
However, this is an improvement on our 2008 research, when 74% of respondents did not measure ROI on pensions.
Worryingly, 21% of respondents do not know how much they spend on plan administration and annual management charges (AMC). Given that the retail distribution review rules, to be implemented in December 2012, will impact the AMC of some plans employers should get a grip on exactly what they are spending.
A large majority of respondents (82%) do not have an annual budget to communicate pensions to staff. Of those that do, a fifth (21%) spend £10,001 to £15,000, while 17% spend £25,001 to £50,000. Around 10% spend £1001-£5,000, a further 10% spend £5,001-£10,000, while 10% spend more than £100,000.
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Sponsor’s comment: Be ready for brave new world
Pensions research: Key findings