Pension schemes may be important to attract talented recruits, but they may be much less useful for retaining the right staff unless companies implement them carefully. Ceri Jones explains some winning strategies
Persuading employees to become engaged with a pension scheme is no easy feat, partly because the word “pension” has a tendency to switch people off.
This was shown in a survey by independent research company Defaqto in December 2006, called The Pensions Report, which revealed that pensions terminology leaves many consumers apprehensive and that the word “pension” has become tarnished with negative connotations.
Alex Tullett, head of benefit communications at Jardine Lloyd Thompson, says firms are trying new strategies to tackle this problem. “A lot of employers are talking about pensions in ways they have not done before, such as replacing ‘pension’ with the phrase ‘your savings scheme for the future’. Many employers are trying to make communications more relevant, particularly to younger employees.”
This need to educate staff, especially the young, about the value of the benefits they may be tempted to ignore or not take up is well documented, but consultants are equally concerned about educating people who are under the illusion that their money purchase plans will provide comparable benefits to their parents’ final salary schemes.
Computer modelling is a good way to convey the issues of defined contribution schemes where investment risk and fund selection falls to the individual. By providing access to transparent online valuations and “what if” models, such tools can also reduce mistrust on the subject and modify unrealistic expectations.
Another useful strategy for firms is to tailor specific communications for specific groups of staff to encourage them to plan for their future. Such segmentation might be done by age, job description, salary, contribution level or marital status.
Some employers are even using profiling questionnaires to target employees even more closely and are segmenting people according to characteristics such as computer literacy, attitudes to savings and comfort levels in a self-serve environment.
Most companies have also long abandoned the one-size-fits-all brochure and now use communication channels ranging from posters to web pages. Jardine Lloyd Thompson itself issued a CD-Rom to staff when it closed its final salary scheme and moved to a money purchase arrangement. This included an interactive modeller to calculate the contributions each individual would need to make to achieve their desired level of benefit. All but nine of the company’s 1,000-plus staff moved to the new scheme.
However, there is a danger in abandoning paper-based communications completely. “For some years we’ve striven after a digital nirvana, but many people still prefer the comfort of a piece of paper. What you don’t want to do is to use something people are not familiar with to communicate something they are not familiar with,” explains Tullett.
Steve Osbiston, regional director at Baker Tilly, says that workshops are also a good way to engage employees. “They give individuals the chance to raise issues and, although mostly the older workforce attend, my experience is that the information is generally passed on down through the ranks.”
Once enrolled in a pension scheme, members may be confused by annual statements, which are often overloaded with data. The best practice is to issue one simple front sheet with a clear description of the fund amount and projected benefits. “Showing too many assumed rates of return can confuse. But what might be helpful would be a comment on the scheme’s security, perhaps the funding situation based on MFR [the minimum funding requirement], or how the trustees are dealing with a deficit,” adds Osbiston.
Aid to recruitment
Although there is little evidence that a generous pension scheme will help to retain an employer’s most valuable staff there is some research proving that it can help attract talent.
Employees who leave are often those who know that their career will accelerate sufficiently that the additional cash will be worth more than the pension security they have lost. The dark truth is a good pension scheme can result in some organisations being left with staff who aren’t at the top of their game and are biding their time to retirement. Futhermore, It is not always the case that the higher the employer contribution rate, the more engaged employees will be. Talk of a couple of per cent of salary in pension contributions often means little to those who are not financially aware and prefer ready cash. Take the public sector as an example, where defined benefit schemes are still open to new joiners, but very few people fully appreciate the true value of the benefit being offered.
There is, though, greater consensus about the effects of pensions when it comes to recruitment.
According to the findings of B&CE Benefit Schemes’ Spring Pensions Survey, half of employees believe an occupational scheme with employer contributions is an important or vital factor when looking for a new job, and one in five respondents said they would not accept a job if a pension with employer contributions was not on offer.
Pensions are an expensive benefit to provide and if a company is generous enough to offer one, communications should be designed to support it and encourage engagement around the scheme.
CASE STUDY: SociÈtÈ GÈnÈrale
In 2005, global fund management group SociÈtÈ GÈnÈrale revamped its contracted-out money purchase pension scheme. It introduced matched contributions of up to 3% to encourage people to save and stopped contracting employees out of the State Second Pension (S2P).
These were added to age-related contributions that the company was already making. The aim was to keep overall long-term pension costs broadly the same, aid recruitment and retention by offering a scheme that was comparable with the company’s peers and encourage members to save.
The group redesigned the communications material for its pension, adding white text reversed out of black and abstract photography of aspirational lifestyle and leisure images, such as flip flops walking on a beach.
Lindsay Hawkins, pensions and benefits manager at the company, says: “Successful implementation and acceptance of change always depends on the effectiveness of the supporting communications strategy.”
The communications included: an initial email announcement, individual comparison statements, member presentations, open surgeries, one-to-one meetings, an online database of frequently asked questions, online decision forms, managers’ briefings, member helplines, and follow-up phone calls and emails to those who failed to respond.