Need to know
- Pensions re-enrolment happens at an employer’s three-year staging date anniversary.
- Explain the change early, highlight what those employees are outside of the scheme have been missing out on but make it clear they can stay opted out, although they must actively say so.
- Keep messages bite-sized, accessible and relevant.
Given the amount of change that has occurred around pensions, benefits and reward professionals might be forgiven for feeling like it was only yesterday that pensions auto-enrolment arrived on to the workplace landscape.
But, of course, pensions auto-enrolment has been in place since October 2012, meaning that, for employers which staged within the first 12 months, many will this year be approaching the third anniversary of their staging date and their first re-enrolment date. This is the point where an employer must re-enrol any eligible employees who are not in the scheme, perhaps because they previously chose to opt out or have ceased active membership.
So, what messages should employers be sending out to their employees as this anniversary approaches?
Explain what is happening and engage with employees early
The Pensions Regulator emphasises that an employer must write to eligible staff individually, within six weeks of the chosen re-enrolment date, to tell them how automatic-enrolment applies to them.
But the more notice employers can give of what is happening, the better, says Catherine Stewart, head of market development for corporate pensions at Scottish Widows. “This builds trust in the process and creates an early opportunity to talk about the value of pensions, as well as the wider package of employee benefits,” she adds.
Show them what they have been missing
Demonstrating the advantages of saving into a workplace pension can be a particularly effective approach. Kate Smith, head of pensions at Aegon, says: “Six million people have been auto-enrolled into a workplace pension and are already building up pension savings. But, around 10% of workers actively opted out of pension saving and have lost out on both their employer’s pension contribution and a government top-up.
“Someone on average earnings of £27,000 a year will have lost a minimum of £635 in employer contributions and £127 in tax top-up from the government. Effectively workers have ‘saved’ themselves £508 in pension contributions but have lost out on a total of £1,270 in their pension, taking a pay cut.”
Roy Porter, director of business development at The People’s Pension, adds: “If [an employer] offers enhanced or matched contributions if [employees] contribute more than the legal minimum, it might be worth highlighting this again.”
It can also be helpful in this context to explain how pensions have changed over the past three years, including the pension freedom reforms, which have made how staff can take their savings at retirement more flexible; changes to the lifetime allowance, which might be especially relevant for higher earners; as well as April’s changes to the state pension.
Explain that staff can still opt out, but they will actively need to say so
“Re-enrolment encourages people to revisit their decision regarding opting out as part of the process,” says Porter. “They will need to opt out again if they still don’t wish to be a member, and, like the first time round, they won’t be able to do this in advance of being put into the scheme.”
Conversely, employers could make it clear to employees that if they are already enrolled or do now want to be enrolled as part of the re-enrolment process, it will happen automatically so they do not need to take any action.
Give employees practical calculator or comparison tools to work with
Many providers offer tools that can enable employees to look more closely at their spending habits and see how they compare with their peers. “Sharing what employees’ peers are doing can make a big difference,” says Scottish Widows’ Stewart. “If 95% of [an employee’s] colleagues are saving into the [workplace] pension they might think twice about opting out.”
Make it bite-sized
Whatever messages employers choose to prioritise, it helps to make the information bite-sized and easily accessible.
As Stewart says: “If employees are already switched off to pensions, don’t overload them with too much information at once. Breaking the subject down into smaller pieces makes it much more manageable.”