Need to know:
- Employers should seek to understand the competing priorities that might stop individuals saving for retirement.
- Inertia is a powerful tool: enrol people at a higher rate and most will not choose to opt-out.
- There is no one-size-fits-all when it comes to communications, which should be highly personalised.
It is generally acknowledged that, despite the success of pensions auto-enrolment, saving the minimum contribution levels will not lead to a comfortable standard of living in retirement. Professor David Blake, director of the Pensions Institute at Bayes Business School, says: “Consensus is that [people] need to save between 12-15% of salary for 40 years to get a decent pension in retirement.”
With minimum auto-enrolment levels sitting at 8%, with 5% coming from the employee, there is a clear gap to plug.
So, what can employers do to encourage staff to save more? First, it is worth examining the reasons behind people not saving enough. In a cost-of-living crisis, it is understandable staff at different life stages will have competing priorities, like getting on the property ladder, says Heidi Allan, head of financial wellbeing at Lane Clark and Peacock (LCP). Retirement is also changing with more people choosing to work into later life, potentially feeling having other investments, savings or property will give them more flexibility.
Pensions can also seem too abstract to think about. After a few uncertain years, some may want more control over their money, rather than locking it away in a pension, says Allan. The complexity of pensions and lack of financial education is another factor, Blake adds.
Communication tactics
How employers and providers communicate with a diverse workforce about saving more is key. Charles Cotton, senior performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD), advises against giving an exact figure, because this can scare people into disengagement if it seems far out of reach. Employers should first ask their people, via surveys and focus groups, for their views about pensions to uncover challenges and allow them to segment initiatives by demographics. “Put yourself in their shoes before launching any initiative,” Cotton says.
Some employers have chosen to offer employees the chance to transfer national insurance (NI) savings into a workplace pension. However, Allan has not seen much evidence of this being widely used, with most employers choosing to use the saving to support staff in more immediate ways given the cost-of-living crisis.
In terms of messaging, there are useful lessons from behavioural economics. research shows people are more attuned to loss than gain, meaning that talking about missing out on free money by not contributing more, is likely to be more effective than pictures of people laughing hysterically on the beach, says Cotton.
That is not to say talking about the quality of life is not worthwhile: focusing on retirement itself can be more effective than talking in percentages.
The main thing on comms, is that one size does not fit all, whether in message or medium, says Allan. “Personalisation is key,” she advises. “It’s about engaging with people so they can engage with their pension in a way that works for them.”
Savings encouragement
Beyond communications, there are other methods for encouraging people to save more. The Living Pension from the Living Wage Foundation requires accredited organisations to reach a savings target of 12% of a full-time Living Wage worker’s salary. Shelley Morris, senior project manager at the Living Pension, says: “We designed the Living Pension using the power of inertia to drive change.”
Anecdotal feedback from accredited organisations is that this is having a positive impact, with people staying at the higher levels.
Inertia, which is also exploited by auto-enrolment, is one of the most powerful human behavioural traits, says Blake “Auto-escalation is the next important nudge we need,” he says.
Employers could try to introduce their own programme, involving a combination of financial education, financial wellbeing and seminars on retirement planning, the mentoring of younger employees and creation of networks for sharing retirement experiences and investment best practice, and employer matching of employee contributions.
Save More Tomorrow, an opt-out behavioural intervention encouraging people to commit to saving more in future in line with salary increases, which is successful in the US, is a concept that more UK firms should explore, says LCP's Allan. While it can be hard to implement from an HR perspective, for individuals the impact can only be positive. But what she would really like to see to help employees save more for retirement is more flexibility around savings in general. “I’d like to get to a position where we talk about short-, medium- and long-term savings and they work alongside each other,” she concludes. “Having the three in isolation means we will continue to struggle to get people engaged in saving for retirement.”
