If you read nothing else, read this…
- Latest reforms present opportunity to, and requirement for, employees to take ownership of retirement planning.
- Generation X is at risk of falling between the cracks and needs to be educated now.
- Effective governance can identify employees at risk much earlier.
- A long-term communications strategy that uses personalisation and technology will make it easy for employees to engage.
“The framework for pension freedom and choice isn’t going to work well, at least not initially.” Not a ringing endorsement for the new reforms from pensions minister Steve Webb at Employee Benefits Connect on 4 March. In fact, he went on to say “6 April is the start of something; it’s not a deadline”, presumably to calm the nerves in the room.
But, beyond the new employer duties and lack of readiness, I believe there is a much bigger issue that employers need to address: succession planning.
What is the problem?
Employers must take an honest look at their efforts to engage employees with pension saving. Failing to support employees’ ability to retire when they want and on terms that are acceptable to them is going to result in an ageing workforce and talent stagnation. Discovering they simply cannot afford to retire and being left to fester on the payroll is the antithesis of ‘good member outcomes’ and certainly not a bright future for any business.
Consider Generation X, which could take retirement benefits in 10 to 15 years. They watched their parents retire with decent incomes from company pensions. And this was achievable with absolutely no effort, thought or planning; it was done for them. What is the likelihood that their offspring figure their employers will still handle this all for them? Pretty high, I would wager.
Generation Xs could be sitting on pots they have not actively considered in years. Six months before the arbitrary retirement date that they probably never chose for themselves, they will receive a ‘put-you-to-sleep pack’ from the pensions provider (sorry, I think the term is actually ‘wake-up pack’, but evidence proves otherwise). The pack is loaded full of technical jargon and a plethora of retirement choices. They could be underfunded, underperforming: cue lots of finger-pointing when they discover the ugly truth.
It does not paint a stellar picture, does it?
Take control
It is time to wake up Generation X. Now, freedom and choice presents a valuable opportunity for employers to shift accountability to employees so they can start considering the future they want after work.
Before worrying about employee workshops or one-to-one sessions, employers should start by considering how they can take practical, simple steps to fostering a stronger savings culture among pension members.
Start with your governance strategy. What, you don’t have one yet? Good governance is not a tick-box exercise; it is a way to measure engagement and see whose pension plans are off-track. Demand data from the scheme provider or administrator and focus on Generation Xs, the ones languishing in poor funds and coasting along on so-so contribution rates.
Next, make it easy for employees to buy in. Create a communication strategy with targeted, meaningful messages that equip members with the awareness and knowledge they need to step into the driving seat. For example, signpost to online tools to help employees establish the realities of retirement. Explain to your Xs the value of the employer contributions and the benefits of increasing theirs. Make sure it is painless for them to do this through payroll and consider implementing bonus sacrifice for those who need to play catch-up.
The small cost of simple steps to re-engage Generation X with their retirement could save a business a fortune in lost productivity and dynamism, which can be the result of poor succession planning. Do not let them drift unwittingly into a position where they can never retire. There is no freedom or choice to be had then.
Matt Frost is chief executive officer at Shilling
