New ways of engaging employees in saving for their retirement could help plug Britain's pensions gap, as Clare Gascoigne reports
Fewer than half of employees (48 per cent) are saving into a company pension, according to a survey by the Office of National Statistics. But could the latest concept in workplace savings – the corporate wrap – make a real difference to the total Britain saves?
Yes, according to Alex Davies, managing director of Hargreaves Lansdown, an independent financial services provider. “This is still very much in its infancy, but we are seeing huge interest with 40 to 50 per cent of employees going online every month when their employer offers a wrap,” he says.
But not everyone agrees. “Corporate wraps are not real,” says Steve Watson, head of pensions and benefits at consultants and actuaries Alexander Forbes. “It’s something the industry has created, but with very little input from those involved.”
So what is a corporate wrap? Essentially, it offers a range of savings products, one of which will be a pension, under a company-branded umbrella. It allows employees to choose between savings vehicles, changing the length of time money is locked away and the tax-free wrapper that is most suitable for their circumstances.
A corporate wrap is about intervention and financial education
“There is demand from the workforce for something other than pensions,” says Emma Douglas, head of Mercer Workplace Savings. “There’s demand from both ends of the spectrum from baby-boomers, who have maxed out on pension contributions, to Generation Y, trying to service £20,000-worth of student debt.”
A corporate wrap helps because it allows staff to take control of their money, says Mr Davies. “Traditional pensions are not particularly good at engaging people,” he says. “The information is so opaque, so full of jargon. A corporate wrap is about intervention and financial education; it’s about getting people interested in the first place.”
The corporate wrap aims to meet employer needs as well. Some 36 per cent of employers believe they get value from their current benefits spend, according to research by Towers Watson; employees either fail to appreciate their employer’s contribution, or even don’t know it exists. The corporate world can no longer rely on the traditional defined benefit scheme to retain older staff or motivate younger ones.
“If you’re going to have to spend some money on benefits, then you might as well make sure your employees appreciate it,” says Ms Douglas.
That’s certainly something with which Mr Watson, of Alexander Forbes, agrees – though he doesn’t see the wrap as a necessary part of it.
“Corporate wraps come from the pensions industry anticipating need, but we are coming from consumer needs,” he says. “Wraps are about an individual transacting, rather than engaging, and the commercial value for a company is about engagement. You don’t need a wrap to do that; that’s about corporate platforms and portals.”
The advantage of a wrap is primarily on the employer’s side of the fence; a benefits package can be outsourced to a wrap provider, who will offer not only a range of company-branded products, but also a continuous programme of financial education and support. This could include any combination of one-to-one or group seminars, and online or paper-based information around both the concepts of savings and the choices that have to be made. It is as much about cost savings and simplification for the company as anything else.
But what’s in it for the employee? Ms Douglas says: “We have found that the biggest benefit cited by employees is that all their saving can be done through the payroll. It’s a big psychological benefit if you never have the cash in your hand.”
A wrap puts everything in one place, rather than having a pension at work and a savings scheme at home. The products can also be taken with you if you leave the company; you can continue saving, albeit through a direct debit rather than a payroll deduction.
There may also be advantages that come through an employer’s buying power, which could mean better interest rates than are available on the high street, though the cynics will immediately wonder how long higher rates will be provided for what is essentially a captive audience.
A further criticism comes from those who wonder whether an employee will trust an employer – whose core business is unlikely to be savings – to choose the right provider, offering the best value product.
But for companies drowning in a tsunami of pensions-related legislation, the corporate wrap could be the life raft that saves them.
Getting the message across
Fewer than a third (31 per cent) of employers say they conduct frequent research to understand employee’s views on rewards and benefits, according to Standard Life’s HR Rewards Survey, 2011. It’s no wonder most of us don’t appreciate what our companies can do for us.
“Knowing your audience is key to delivering information in the right tone and via the most appropriate media,” says Karen Partridge, chief business development officer at Anthony Hodges Consulting. “A personalised approach will always be more successful.”
Effective communication can make or break your benefits strategy. According to Employee Rewards Watch, 2011, published by Thomsons Online Benefits, 77 per cent of those who have tried a Total Reward Statement think it is a highly effective communication tool, which leads to staff having an improved understanding of the make-up and value of their package.
But key is being creative. “It’s not a question of one cap fits all,” says Michael Whitfield, chief executive at Thomsons. “You have to provide different media for different people – some want to read information online, others to have it on paper.
“It’s also about language; I always ask people what they plan to do when they work less, not when they retire.”
Ensuring the message gets across means tailoring it as far as possible; employees in Glasgow are less likely to respond to a video voiced by a plummy Londoner, and, if your company demographic is young, don’t use a middle-aged man in a grey suit to explain your pension strategy.
Communication also needs to be regular – little and often is best. “It’s important that benefit statements have clear calls to action so that members know what they need to do to improve their pensions,” says Ms Partridge. “A proactive approach can pay dividends.”