How can you get your staff motivated on pensions?

Neil Hawkins, national employee communication manager at Friends Provident, gives tips on how employers can successfully get their staff to improve their pensions savings.

As we approach the General Election, the mind starts to boggle as to how a new government (Conservative or otherwise) might tackle the proposed pension reform. It is widely acknowledged some form of compulsion is the only way to deal with the growing problem of more and more pensioners funded by the same amount of National Insurance contributions.

However, compulsion is a political hot potato and is being neatly ducked with the introduction of auto-enrolment.

The fundamental problem is the proposed National Employer Savings Trust (NEST) faces an administrative nightmare, as a largely internet-based system attempts to deal with every employer in the land who does not already contribute into a pension for their employees.

Communication between providers and employers can be well-managed, but it depends on a good working relationship for it to be successful.

But what about those employers who have not yet taken an active decision to run a scheme for their employees? Imagine small restaurant owners, pubs and other retail outlets which have high turnovers of staff. Will they want to administer and communicate pensions to their employees?

I accept we all have to live by the law of the land, but will part-time and low-paid workers wish to contribute anyway? Auto-enrolment relies on inertia to make it work, but if the employer and employee have no desire to contribute, will they find a way not to?

Stakeholder pensions  

We also have the anomaly of the stakeholder pension to contend with. This was introduced to do exactly the same job as NEST, but with even less appetite to collect contributions from employee or employer. One would have thought that creating this network of employers who have group stakeholder pension plans would have provided an ideal platform to introduce auto-enrolment or compulsion. Instead of that, we create another completely separate product (NEST) and bypass the pension providers; the very organisations that have the experience in administering such schemes.

The question is: why do we need this continual reform, creating more and more complication and confusion, when exactly the opposite is required? The fundamental difficulty in getting people to see the benefit of a pension or a fund for the future is people are focused too much on the immediate future. The problem arises when these same people reach a point where they realise they do need an income when they stop work and by then, often it is too late to make a significant difference. Even those who do contribute fail to increase contributions to a satisfactory level.

Corporate platforms

However, the advent of corporate platforms offering a range of short, medium- and long-term savings vehicles will engage a younger audience, as savings become more tangible and relevant. Offering the option of cash to pay off overdrafts, or towards a deposit to buy a house sounds appealing and offers an exciting opportunity for employees of larger organisations.

But with this comes even more complexity. Individuals face often difficult decisions, such as: should I invest in an ISA, a share save, a share incentive plan or a general investment account? How much should I save into my pension?

While these challenges can be addressed in the longer term and suitable assistance and education can be provided via employers, the question remains: how do we start to engage people and help them to take responsibility for their own retirement planning?

Communication and education

This is a massive challenge that cannot be achieved overnight. We can improve the way we communicate in many ways but will this alone make a difference? In today’s world, most of us are accustomed to online banking but our experience shows that less than 10% of Friends Provident members use the internet to access their pension details. Although the numbers are growing, there is no evidence to suggest that young people are anxious to get involved in pensions. So what’s the answer?

Tapping into human behaviour and understanding how to best frame messages and tailor messages to suit our psyche is a good starting point. We have identified a simple four-step approach for employers that will prove effective in both the short and long term:

• Educate.

Using holistic material, incorporating audio, visual and kin aesthetic techniques, research shows that we retain 70% of information if we do something (kin aesthetics), compared with only 20% if we read something (visual) or 30% listening (auditory).

So abandon the 50-slide PowerPoint presentations and instead encourage employees to get involved by playing card games, taking part in group exercises or writing on the flip chart. It is surprising how effective this can be and how much people can learn in this environment.

• Communicate.

Once your employees have a basic and holistic understanding it is the time to provide specific communication. Provide clear and concise information avoiding jargon. Always consider whether you would be able to understand it if you had no knowledge of the subject.

• Nudge.

Use behavioural science to create simple, decision-making architecture. Make decision windows for responses, use auto-enrolment and auto-contribution uplift to ensure contributions are collected and increased. Research shows if employees agree to increase their contributions over a number of years at inception, providing they stay with their employer, they are very likely to stay with the programme provided they are offset by salary increases.

Market a small choice of funds, preferably less than 10. Offer a wider choice only if your employees specifically require this. Your employees are effectively a network, so use this network to create positive messages. Remember, good news spreads quickly, but be careful, so does bad.

• Default.

Unfortunately, our research shows we will not attract everyone with the above techniques, so a well-designed default programme is essential. Remember, default is not bad as long as employees have considered their alternatives first and the default is up-to-date and relevant 
l Finally, use of all of these steps together. Communication and education alone are unlikely to work, and using behavioural science without communication and education simply creates a ‘sat nav’ mentality, not an informed choice.

So how can employers make a difference to their organisations? And what should any newly elected government have on its radar in terms of tackling financial education in the workplace. Put simply, it makes sense for employers to consider their current pension and benefit arrangements and how these options are currently communicated to employees. Think about whether you have a written communications plan and if so, do you stick to it?

Any new government has to help employers by implementing and then sticking to a long-term and strategic approach to achieving public confidence in saving. There is now, more than ever, an urgent need to address and change the savings culture within the UK. By implementing a public policy that gives people the freedom and confidence to become self-reliant we can move towards a well-educated nation of savers. But we need to remove the barriers to saving and offer incentives to support those who do the right thing in terms of self-reliance and avoidance of poverty in old age.

We all have a responsibility to improve knowledge and help our employees to take ownership. But it is not just about taking our employees to water; it is about making it easy for them to drink.