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Why don’t my employees care about their pension?

Philip Blows

I was sitting with an employer last week talking through their efforts to get staff to plan for retirement. They had a generous pension scheme where employees contribute 3 percent and the employer will contribute 6 percent all the way up to a potential 6 percent employee and 12 percent employer. Article by Philip Blows, Director.

Now the problem is despite this structure over 90 percent of the workforce are sitting at the default contribution rate (3 percent employee, 6 percent employer) and all were investing in the default fund which, they admitted, at a risk level of four out of seven was not appropriate for their predominantly young workforce. This is by no means an isolated case with the majority of employers we visit showing similar engagement figures. I met one employer who had been told by their scheme adviser they were doing a great job because 10 percent of their workforce had logged into their platform to check on their investments. Apparently this was a fantastic result well above the industry average.

At what point did it become acceptable in the world of pensions for only 10 percent of people to have any clue about whether they were saving enough to survive in retirement? Employers being told that this is ok by corporate advisers is going to lead to complacency as the employer does not feel obligated to help their employees further. The data is damning. A 2015 report by the Money Advice Service showed that 4 in 10 adults did not have more than £500 in savings. On average pension pots at the point of retirement amount to £72,000 producing an annual income of around £3,000. This is at a time when people starting work today can expect to live for 30 years after they retire. Long gone are the days where one could expect to receive a generous final salary pension. Both employees and employers need to wake up to this new reality.

So, why don’t employees care about their pension? Simply put, employers think they are doing enough by only getting ten percent of workforces to even open a pension communication so aren’t highlighting the importance of long-term savings. Meanwhile, employees are more concerned about upgrading their company car or managing debt than worrying about their retirement. I recently mentioned to a friend that they should consider putting around 15 percent of their salary into a pension to which they responded, “I can’t afford that!” I would have believed him except for the fact he had a suntan from a recent trip to Mauritius. For many it is less a case of affordability and more a case of priorities.

Luckily, this situation is not always the case and there are a number of innovative employers with paternalistic cultures who feel a moral obligation to help employees plan for a comfortable retirement. These employers recognise the long-term benefits of a workforce which is not stressed financially and who remain productive up until the point of their chosen retirement date. They understand employees who are forced to work beyond the time which they would like to have retired will be less motivated and engaged and can contribute to a less productive working atmosphere which can affect the whole company.

Fortunately, despite the pension landscape becoming more complicated, help is available. Financial advice services that were previously only available to high-net-worth individuals are now available to everyone due to advances in technology.  Online financial advice tools with engaging user experiences can help employees change ingrained spending habits and assess their budgeting requirements with ease.  Making changes to long term saving plans is simple with advice tools linked directly to existing payroll systems so all admin is taken care of for the employee ensuring the least resistance between the employee wanting to make a positive change and the transaction taking place. It has never been easier or cheaper for employers to offer employees access to advice that will help have a meaningful impact on their financial health. Wealth Wizards’ end-to-end solution integrates with existing pension providers and payroll software to ensure minimal additional work for HR, pension or reward teams to install.