Pension reform can be a benefit, not a penalty

Introduction of pension auto-enrolment is putting pressure on dwindling incomes but can be an opportunity for greater staff engagement, writes John Greenwood


Auto-enrolment can, at first glance, look like just another administrative and financial burden on the shoulders of employers. But with enrolling staff into a company pension scheme now a legal obligation for many employers, shouldn’t firms make a virtue of the process by turning this compulsion into a compelling workplace benefit that helps distinguish them from their peers?

The dilemma for employers is whether they should do the legal minimum and no more or get behind the process, in the hope that engaging staff with their new pension will help with recruitment, retention and motivation.

Richard Smith, senior manager at PricewaterhouseCoopers, points out that pension contributions will be valued less by lower income groups, because a greater proportion of their income in retirement will be given by the state, and also by young people who have other priorities.

Employers should target any additional spending above the legal minimum at those who will perceive it as valuable

“We would challenge the conventional thinking that pensions always recruit, retain and motivate,” he says. “They might do for some staff, but not all. So employers should be looking to target any additional spending above the legal minimum at those who will perceive it as valuable. These tend to be middle and higher managers.”

That said, a look at some of the very largest employers in the first wave of auto-enrolment reveals organisations in the same sector taking very different approaches to the pension they have offered, depending on their paternalism and core values.

“In the supermarket sector we have seen Tesco opt for a defined benefit career average scheme, Asda and Sainsbury’s go for a defined contribution scheme, and Morrisons opt for a cash balance scheme sitting somewhere between the two,” says Mr Smith.

Whatever approach employers take, effective communication of benefits is key to maximising the value in terms of how they are perceived by employees. But mistrust of pensions, particularly among the auto-enrolment target group, means clear messages are essential.

“Many people have perceived the idea of deductions from their pay packet as a tax,” says Ann Flynn, head of workplace marketing at Standard Life. “But many of these people were unaware about the employer contribution and the tax break that comes with it. They were also unaware that it is their money and not part of some scheme that could disappear. By giving employees simple messages about what pensions actually are and confronting some of the negative preconceptions associated with them, engagement can be substantially improved.”

Matt Waller, chief executive of benefits firm Benefex, points out that many of the people being automatically enrolled into pensions do not have computers at work or home. “For them, their phone is their principal, if not only, source of internet access,” he says. “So mobile-enabled website materials are an increasingly significant part of the communication process.”

Ms Flynn sees giving employees a sense of empowerment as key to successful engagement. “It is important to make people feel like they are in control,” she says. “And this means actually making it easy to opt out. If you do not, people will feel trapped. But you can still give them an ‘are you sure?’ message, explaining what they are missing out on, if they do opt to leave.”

Alastair McQueen, pensions marketing manager at Aviva, says his company’s research suggests some 95 per cent of employees do not feel comfortable with the concept of workplace pensions. “Education needs to be very basic, focusing on key simple messages, such as the fact that the only choices we have are to save more, work longer or retire poorer,” he says. “Empowerment then involves promoting the tools and online calculators offered by pension providers that allow employees to engage with their pension fund, see how it is performing and see how changing when they retire, and how much they put in, can change their retirement outcome.”

Technology means these messages can be spread cheaply through a wide range of media, from apps to texts to email alerts to posters. The Department for Work and Pensions and The Pensions Regulator both have a wide array of free communications materials on their websites.

Promoting “pensions champions” in the workplace is a further way of boosting understanding and appreciation, adds Mr McQueen. “Individuals selected for detailed information sessions, either chosen because they lead teams or by asking for volunteers, can become powerful walking advocates and explainers of how auto-enrolment can benefit employees,” he says.