For the majority of employees in the U.K there is free money available to them, often as much as a few hundred pounds each month, that they can claim with just an email to their Employer.
So why aren’t employers doing more to help employees claim this money?
If you work for a large employer you will have access to a company Pension Scheme. The way it works is you put money in every month and your employer will often match or even double match it. The amount your employer will match will vary but if you work for one of the U.K’s largest 100 companies they are, on average, prepared to pay up to an additional 10 percent of your salary each year into a pension according to research by Willis Towers Watson.
Now here is the catch. Although your employer is willing to give you this extra money each month, it often will not do so automatically. When you first join a company you will be enrolled in the company Pension Scheme, however the rate you are enrolled at will usually be what is called a default contribution rate or Auto-Enrolment minimum and is generally much lower than the maximum your employer is willing to match. For example, a company may be willing to give you a Pension contribution of 10 percent if you are willing to commit 5 percent of your salary. However, this same company when you join, may enrol you at a default rate where you put in 2 percent and the company puts in 4 percent. In this scenario you are effectively missing out on a 6 percent tax free salary increase which you could have if you are willing to direct just a little more of your earnings into your long term savings plan.
So, I hear you ask, why doesn’t your employer just enrol you at a level that maximises their contribution? If I am not being cynical, I would say it is because employers want you to understand and value what they give you. It should be your choice whether you maximise this generous matching as you may have other plans for the money you would otherwise be forced to contribute from your own salary. If you receive a benefit from your employer without ever really understanding what it is you are receiving then how can it be used to recruit, reward and retain you, which is the main reason rewards are given to employees in the first place. I do agree with this argument as employees who are not engaged with their finances will run into problems around indebtedness and chronic under-saving, leading to poor retirement outcomes. This has been tied to an increasingly ageing workforce, greater stress in the workplace and people becoming less productive. All issues employers are keen to solve.
Now for the cynical argument! If I am a large employer with 5000 staff, paying the U.K average wage of £26,500 you have a wage bill of £132.5m. Now if we use the example scheme above, if the employer enrolled everyone at the maximum level of matching they would have to contribute the full 10 percent or £13.2m per year. Now if they enrol everyone at the default rate and only have to contribute 4 percent this falls to £5.3m. That is £7.9m of unclaimed employer funding that is sitting there waiting for employees to claim it.
Now this is where a conflict arises. On the one hand we have a growing trend of companies launching financial wellness initiatives aimed at ensuring that their workforce is saving enough to enjoy a comfortable retirement. Job titles such as Chief People Officer and Employee Engagement Manager are commonplace and whole departments are seemingly focused on ensuring employees know how to manage their finances and maximise their employer matching. However, when you look at quarterly earnings reports there is often no allowance made for employees increasing their Pension contributions. In other words, if the whole workforce turned around tomorrow and took their unclaimed pension contributions this would be reflected in a big red mark on the income statement and a probable miss of the quarter’s profit expectations.
Herein lies the problem. Companies need to balance the wellbeing of their staff with the realities of managing the bottom line. In uncertain times internal communication budgets and services aimed at employee engagement are often the first on the chopping block and it could be argued that this is the case as these have the added effect of ensuring people remain in the dark about some of the expensive employer benefits on offer.
Now I would stress that many employers have a genuine interest in helping their staff plan for a comfortable retirement. If the company has a long-term mind-set, then the advantages are clear as happy employees who aren’t stressed about their finances tend to be more loyal and productive. At Wealth Wizards we work with some amazing companies who are trying to make a real difference to their employee’s future and show real empathy with the financial challenges they face. These companies recognise that bland communication strategies are not enough to drive people to make positive changes to their finances and so work with us to provide them with access to expert, online financial advice.
So the questions I would leave you with is: Which category does your employer fall into? Do they make it simple to claim the matching that is on offer and make regular attempts to help you or do they simply provide you with a pack full of financial jargon when you are first enrolled in your Pension? To find out more about planning for retirement or if you are an employer looking to improve the financial health of your workforce get in touch today or visit www.wealthwizards.com to learn more.