Jonny Gifford: Why employees do not naturally engage with workplace savings schemes

The world overloads us with information at every turn and our minds do not like it. Detail clings to financial advice, on the other hand, like so many limpets. Of course it does: advisers need the detail to consider eventualities, recount sub-clauses and cover their backs. But our minds quickly fall prey to information overload.

People deal with this in various ways. The first is through mental shortcuts, or heuristics. We love to think we are rational beings, carefully considering available options, but for the sake of brain efficiency, we cannot often afford to be. Instead, we make decisions based on what feels right. We use association, automatically relating what we see to previous experience and responding in line with how we are used to behaving.

We are also driven by a strong aversion to regret. Faced with too many options, or options we just do not understand, we tend to sidestep them. This is why auto-enrolment was a smart move. Making the most desirable option the default is something we should be doing more generally, more often.

Another inherent challenge with choices in pay and benefits is that they require us to balance current and future needs. This is also something we are inherently bad at doing. We place more value on the former than the latter. This can be seen in employee responses to pension contributions. A typical twenty-something will wish their employer put less into their pension pot and more into their pay packet. Cake now rather than a feast later is our instinct.

There is no silver bullet to these challenges but good communication is vital. Simplify options so the average employee can make meaningful choices. Make the most desirable options the easiest to follow. Drive home the importance of making the right choice, making use of another strong influence, that of peer pressure and our fear of being out of line.

Jonny Gifford is adviser, organisational behaviour and research insight, at the Chartered Institute of Personnel and Development (CIPD)