Employers still place a high value on pensions, but many concede they should be doing more to boost staff take-up, says Debbie Lovewell
Over the years, workplace pension schemes have not fallen out of favour with employers, despite the (often complex) challenges they pose for many organisations. This is borne out by the fact that our respondents’ view of employer-provided pensions has not changed over the past 10 years.
The top three statements with which they most identify have not changed in the past decade, although the order in which they fall has varied slightly over the years. Back in 2000, for example, 68% of respondents said they felt responsible for employees’ financial wellbeing, 66% said it was a valuable recruitment tool, and 64% said their scheme was a valued retention aid.
The importance of pensions as a benefit has also risen over time. In 2000, for example, 28% of respondents said they had to offer a scheme because their competitors did. By 2004, this figure had risen to 46% and has remained fairly consistent ever since.
So, despite numerous headlines to the contrary, it seems employees have not lost faith in workplace pension schemes. It will be interesting to see whether this trend continues when the forthcoming pensions reforms come into effect in 2012.
Many respondents recognise the role employers have in encouraging staff to save for retirement. In many cases, they may work in tandem with the government or individuals on this matter.
Employers are ideally placed to communicate pension benefits to staff, helping to overcome issues such as a lack of employee understanding around pensions generally and investment, as well as tackling apathy or inaction.
One option is to offer staff access to financial education or advice, which can help employees work out how they can best save for retirement, based on individual circumstances. This may overcome the issue of affordability, which is cited as the main reason why some employees do not join their employer’s scheme.
Over the years, employers have taken a paternalistic approach to ensure staff have an adequate pension. Over the past five years, the top four measures they take have not changed.
What is more telling is what respondents feel they should do, but currently do not. More than half (53%) said they should include pensions in total reward statements, 43% said they should proactively educate staff about pensions, and 37% said they should auto-enrol staff into a scheme. Interestingly, in light of the 2012 reforms, 50% say it is not the employer’s responsibility to operate compulsory minimum contributions for employer and staff.
Pensions typically are a significant spend for most employers. On average, a quarter of respondents spend 1% to 5% of payroll each year on pension contributions and administration.
A further 19% spend 6% to 9% of payroll, and 18% shell out 10% to 15%. But given the sums that are often involved, it is perhaps a little concerning that 15% of respondents do not know what they spend in these areas each year.
Where employers are spending significant sums on pensions provision each year, they will be keen to ensure staff value the perk. Communication is therefore vital, but employers do not need to spend large sums of money for this to be effective.
In the current economic climate, it is surprising more employers are not helping employees take advantage of some of the tax breaks available around pensions provision. In part, this may be due to a lack of awareness about the available tax breaks. As recently as last year, just under one-third (30%) of respondents said they had not heard of the tax break on pensions advice, despite it having been introduced in 2004.
Enabling staff to make use of such tax-efficiencies can boost their perception and value of a scheme by making their money go further.
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