How can organisations create a benefits proposition that talks to and engages their entire workforce, one that now encompasses four, possibly five, different generations? It’s a question we half know the answer to that a one-size approach no longer fits all. But it’s also one where the detail of the solution is often much harder to pin down.
What we do know, however, is that all employees have very different needs, often brought about by key life events, whether it’s buying their first home, getting married or divorced, having children, sending youngsters to university or preparing for retirement.
That’s why we believe the best solution to this question lies in actually meeting these needs by using a mechanism that so far only a handful of employers are using, providing employees with a new workplace savings product that is an alternative to, but not a replacement of, the traditional employee pension.
There’s a reason why an alternative product has the potential to be so powerful. Imagine if younger employees could see some of their pension contribution diverted into an employer-provided workplace saving ISA, boosted by some of the pension contributions from their employer too.
There needs to be a debate about whether a pension on its own really works for staff
What if this enabled them to save for a deposit on their first home? Or what if employees who are planning children could use some of their pension contributions to save into a shot-term fund that helps them build up a buffer for when their partner goes on maternity leave?
The possibilities are limitless, but the point is this: if staff are offered more choice about how they use their pension contributions, to meet more immediate, but temporary needs, then surely it’s an engagement lever employers should be considering offering, before staff revert back to full-time pension savings.
Of course, there’s a clear reason employers may be nervous of it. The UK has, some might say finally, created a savings culture where putting aside now for later years is much more sacrosanct. But, while we don’t disagree pensions are important, what we are suggesting, and what enlightened companies should be questioning, is there needs to be a debate about whether a pension on its own really works for staff.
For most firms, pensions are their biggest benefits spend and it’s their second or third largest reward spend after salaries and bonuses, but the truth is employees are now weighing up whether to continue pension savings or take their money elsewhere to pay for what they consider more important expenditure. This dilemma may well only intensify as minimum pension auto-enrolment contributions are set to rise.
Rather than people drop out of pensions altogether, our view is that a pension need not be an all-or-nothing option.
If companies can give their staff cash to buy the things they need now, but then re-enrol them after that need has passed, they still maintain the important message of pension saving, while adapting to employees’ differing and changing personal needs.
Clever firms can actually link the dividing of their contributions to length of service or performance metrics to bring an element of performance management into play. This way they’re not simply giving away “free money”.
Yes, firms will still worry about whether they should promote any other savings vehicle that hints at something other than a pension. But what we believe is that giving more options does not preclude staff from saving for their later years. If anything, evidence suggests employees are distracted and unproductive at work purely because of current financial worries.
Giving staff a new solution that helps them meet their life-stage financial needs means they will be more present at work, happier and mentally healthier too – and can still pay into a pension. This is surely just the outcome many employers want.