This September, Pension Awareness Month gave employers a timely opportunity to consider how their employees are engaging with their retirement future.
For employers, simply fulfilling the legislative requirement of providing a pension scheme for automatic enrolment has become increasingly insufficient.
Fundamentally, the role of the employer is evolving, with a greater focus on supporting employee wellbeing holistically. Beyond changes to pensions, this is being driven by changing workplace cultures, evolving employee expectations, and established and future government policy.
In this article, we ask what should the employer’s role in retirement readiness look like, and how can it evolve to meet changing employee expectations?
Pensions: what has changed?
Across Europe, reforms to pensions – including upcoming changes to salary sacrifice (opens a new window) in the UK and retirement ages (opens a new window) in Ireland – have placed a greater onus on businesses to help support staff as they transition to retirement.
This shift is encouraging more prudent, longer-term retirement saving and raising individual responsibility for a stable financial future – creating important implications for employers.
While pensions remain an important facet of financial security, it alone isn’t enough. Education and financial wellbeing are increasingly important, particularly as future changes, such as rising pension ages, may require employers to support an older workforce for longer.
What does an aging workforce mean for employers?
As employees live and work longer, employers will encounter various challenges from managing an ageing workforce.
Approaching retirement may create anxiety for staff worried about their future financial security as fiscal pressures could force people to work beyond their intended retirement age. This is a core issue for mid-lifers, government research (opens a new window) has revealed that 45-54-year-olds are the age group least likely to have checked their UK State Pension – despite this being a crucial stage for retirement planning.
As state pension age continues to increase, employers should expect to see employees staying longer in employment in response. According to a study by the University of Bath (opens a new window), a one-year rise in the state pension age reduces the likelihood of retirement by 8.2% for men, and 6.4% for women.
While older workers possess valuable experience, they will also introduce medical insurance considerations for employers, with premiums and claims likely to rise in tandem with an ageing workforce. This can compound preexisting costs on pension services employers are already funding.
Considerations for younger employees
On the other hand, for younger employees, employers should not underestimate the power of education. It is crucial to help employees understand that small changes made early can manifest in significant outcomes as they reach retirement age. Currently, just 11% of workers aged 18-24 (opens a new window) perceive pensions as a ‘key benefit’.
Younger staff cohorts have a unique and crucial window to begin building for their future. For workers in their 20’s, time is their greatest advantage, with an investment horizon of 30 plus years. As such, it is important employers dedicate resources to help them comprehend the opportunity this presents.
Joining the dots: how can employers reliably connect with different age cohorts?
It is strongly recommended that organisations tailor messaging to the demographics of their workforce – a blanket approach will often fail to resonate with staff of varying ages and backgrounds. Individual circumstances will largely dictate retirement strategies and outcomes, with lifestyle costs, inheritance, and other assets varying significantly by employee.
While it can be challenging to speak to all employees on a personal basis, organisations should work to understand the primary concerns and motivations for the multi-generations they employ. For example, younger workers are more likely to be juggling various, pressing financial issues, such as getting on the property ladder. Consequently, junior staff are more likely to consign pensions toward the bottom of their fiscal priorities. However, businesses must remain mindful that as employees age, pensions will gradually rise on their list of financial priorities and concerns.
To communicate effectively to members of staff, employers can schedule group presentations to create a captive audience for pension discussions, pushing employees to reflect on an issue that can be neglected. Pension clinics with a pension professional are also valuable – providing staff with ‘handholding’ reviews. These reviews could be encouraged at key life stages, such as marriage or having children, and at the milestone ages of 30, 40, and 50.
While updates, pamphlets, and websites are useful, employees need a bridge between static communications and the personalised guidance needed to make informed decisions. Direct engagement can often achieve far better results by prompting employees to review their position and improve their retirement preparedness.
Staying on top: analysing your support to maximise value
Periodically reviewing the provider market is a key aspect of both responsible governance and measuring service. Employers may have schemes set up over 10 years ago or legacy arrangements that haven’t been scrutinised or analysed for an extended period of time. Commonly, these pension schemes may be underperforming, carrying higher member charges, and be difficult to navigate.
Businesses can also measure the success of their pensions service via the evaluation of provider data, member analytics, and employee surveys. Surveys are a particularly useful tool – giving employers insights into how employees perceive benefits packages and how frequently they engage with their pension.
For deeper insights, specific questions can be tailored for different age groups and career stages. Feedback can help employers adapt their overall pension offering to improve member outcomes. Businesses should look to leverage data and analytics to understand if employees are being incentivised to make additional contributions, and if they feel empowered to make the most appropriate decisions based on their own individual financial circumstances.
The bottom line: transforming your workforce to become retirement ready
Employers have an active interest in helping employees to engage with and understand their options as they prepare to become ready for retirement.
As retirement ages and employee expectations evolve, providing accessible education and guidance is an essential part of supporting long-term financial wellbeing. Ensuring your support reflects the needs of an increasingly diverse workforce can help your business provide the right support at the right stage of your employees’ careers.
Business should habitually consider and review practical steps they can take to support workers. For example, for older members of the workforce, employers could offer phased retirement. Meanwhile, for younger cohorts, education is paramount. Relatively small increases in contributions can have a significant impact through compound growth.
How we help employers
Employers should regularly review their pension arrangements to ensure they remain fit for purpose. Careful considerations should be paid to the needs of different workforce demographics to ensure business align with all of their employees’ needs.
Where our clients lack expertise or the levers to improve outcomes, our professional support can help ensure pensions offerings continue to perform well and deliver retirement outcomes.
As an established consultant in the pensions space and wider employee benefits industry, we are able to provide our clients with data-driven insights that help employers to navigate changing requirements and support their staff when they need it most.
For more information, please reach out to a member of Lockton’s Pension and Workplace Savings (opens a new window) team in the UK, and Ross Mitchell (opens a new window) in Ireland.