How can employers ensure pensions remain an effective talent attraction and retention tool?

One of the unintended consequences of auto-enrolment is that, for some employers, pension provision became something of a compliance exercise rather than a means of standing out in a competitive recruitment market. 

But recent plans around the introduction of the Pensions Dashboard and small-pot consolidation should help to focus employees’ attention on their pensions. The planned cap on the amount of salary that is exempt from tax through salary sacrifice arrangements, coming into force in 2029, will also force employers to make decisions around how pensions fit into their wider recruitment and retention strategy. Justin McGilloway, partner and head of pensions and employee benefits at law firm Wedlake Bell, says: “Employers will need to rethink how they incentivise pension saving as the [national insurance contribution] NIC advantage on salary sacrifice diminishes.”

Strong pension proposition

There are several ways in which employers can make their pension proposition stand out more, so it becomes a stronger tool in the battle for talent. Mark Futcher, partner and head of defined contribution (DC) at Barnett Waddingham, says: “The most obvious lever is to increase auto-enrolment contributions. It is now widely understood that the minimum 3% employer contribution is unlikely to deliver a comfortable retirement for most employees. And as awareness grows, employees will likely be drawn to employers that can support higher combined contribution levels; ideally 12% or higher.”

It is also possible to strengthen a pension offering without fundamentally increasing costs. Joshua Hayes, principal consultant, pension and financial wellbeing, at Howden, says: “Many are reviewing contribution structures to go beyond statutory minimums in a more targeted way, for example, through matching additional employee contributions or encouraging gradual increases in saving as pay rises. Additional voluntary contributions, where supported by clear communication and simple payroll processes, give employees flexibility to boost their retirement savings while retaining tax advantages.”

Pensions education 

Employers should not dismiss the benefits of pension salary sacrifice arrangements, either, despite the upcoming changes. Sophia Singleton, president of The Society of Pension Professionals, says: “Even once the restrictions come into force, salary sacrifice will continue to be worthwhile as savings can still be made. They will simply be slightly less than they currently are for those with personal pension contributions above £2,000 per annum.”

Many employers offer some form of financial education to their workforce, which includes pensions, on an ongoing basis, which can also help employee appreciation, she adds.

How employees view pensions differs by generation, says Hayes. “Younger employees may place greater emphasis on salary progression, flexibility and short-term financial resilience, particularly in the context of housing costs and debt,” he says. “Pensions are often seen as a ‘background’ benefit unless employers actively make them relevant and easy to understand.

“Mid-career and older employees, by contrast, typically place increasing value on employer pension contributions as retirement becomes more tangible and decisions about long-term financial security feel more urgent.”

Communicate the benefits

Effective communication is vital, though, to ensure employees understand what they are receiving and how this may differ from other organisations. Karen Rider, head of people at ICS-digital, says: “Even a strong pension scheme can be undervalued if people don’t understand what it provides, what their employer contributes and what it could mean for their future. 

“The best approach is to explain pensions in plain English, show the value in real terms and connect it to the wider employee experience: feeling supported, secure and treated fairly. Making pension information easy to access through simple [frequently-asked questions] FAQs, short guides and timely reminders tends to be far more effective than sharing long policy documents.”

It is important to include regular touchpoints, adds Jason Cannon, client team leader at Gallagher’s UK benefits and HR consulting division. “That might mean targeted messaging at key moments like promotion, using short digital tools that show the impact of different contribution choices, or access to guidance so employees can ask the right questions when they need to,” he says.

It is also important that employers keep tabs on providers, to help ensure employees achieve the best outcomes, adds Futcher. “Employees are starting to recognise the importance of both the contribution rate and choice of pension provider,” he says. “[Organisations] that actively monitor their providers, ensuring they are offering competitive benefits and show a genuine commitment to their employee’s future, will position themselves as the most attractive potential employers to future and existing candidates.”