Pension engagement linked to communication

The investment employers make in communicating pension schemes to their employees has a direct effect on their attitude towards a pension and contribution levels regardless of their salary, according to research conducted by London School of Economics (LSE) and commissioned by Thomsons Online Benefits.

The impact of a total reward approach on workplace pension engagement research, which surveyed nearly 1,000 employees, considered pension engagement from three perspectives: as a personality trait, as an attitude and as a behaviour. In other words, it considered the extent to which people are prepared to defer their income, positively value a pension and act upon those intentions.

The research compared two sets of employees. Group A, comprised of 454 employees who worked at organisations that use a total reward model, including strong communication with staff, and Group B, which comprised 500 employees who were eligible for a workplace pension, but were at organisations that do not operate a total reward model.

In the first group, where strong communication was used around benefits, 20% were more likely to pay in at least 4% of their salary to a workplace pension scheme.

In the second group, where no total reward model is operated, respondents were less informed in general around their pension contributions, their investment fund options and what they will receive in retirement.

The research also found:

  • Staff in Group A, where a total reward model operated, were 17% more likely to be a member of their workplace pension scheme irrespective of salary level than those in Group B.
  • Group B was also less informed about pensions, with a quarter of them not knowing how much their employer contributed on their behalf, compared to 10% of Group A.
  • Almost 17% of Group B did not know how much they contributed into their pension themselves, compared to 8% of Group A.
  • Group A was much more likely to understand the tax advantage of pensions than Group B.

Michael Whitfield (pictured), chief executive officer of Thomsons Online Benefits, said: “The challenge with auto-enrolment is that it’s mandatory, which drives apathy rather than engagement among employees.

“Members are unlikely to appreciate, or act on this need by themselves, highlighting the crucial role employers play in helping their staff save for their financial futures.

“We believe auto-enrolment represents a great opportunity for organisations to engage their people, and support them in their pension planning while enhancing staff loyalty.

Investment in communication is vital to ensure that employees actively engage in their workplace pension, understand it and recognise the value of it for a better retirement future.

“Currently, employers have no obligation to offer guidance or support to employees around their pension choice. However, if employers don’t support and educate their staff and help them fund for a decent retirement now, then society and ultimately the same businesses will pick up that significantly increased burden in 20-30 years’ time.”

Dr Sandy Pepper, author of the report and professor of management practice at LSE, added: “Our research found that a clear system of communication and open dialogue significantly increases employee engagement levels with a workplace pension and improves staff contribution levels above 4%.

“Without effective communication around auto-enrolment, there is a fundamental risk that people will not recognise the importance and value of pension contributions. This represents a missed opportunity for employers and a potential headache for government.”