Debi O’Donovan, editorial director, Employee Benefits: Too often employers focus on pension scheme membership and contribution levels while ignoring the other financial burdens (mortgages, debt, mid- and short-term saving) of staff.
It is my belief that employers which emphasise pensions in a vacuum of financial education are being poor corporate citizens. They could unknowingly encourage bad financial decisions for particular individuals, for example encouraging them to contribute more to a pension instead of decreasing a debt.
So this is a strong call to action for employers to make sure that wholistic financial education and products are offered to all staff.
A savings culture was sadly lacking during the recent boom years and now we are facing the fallout from the credit crunch. The majority of staff are going to need all the help they can get as they grapple with mortgages, debt, declining share values and potentially low (if any) salary increases.
Novel thinking on integrated financial benefits should become the order of the day. Occupational savings plans could include the full range of short, medium and long terms savings plus ways to pay off debt. Over the years we have seen employers such HSA and Logica offer mortgage savings options to staff. Each scheme varies slightly, but in principle staff could save towards a mortgage deposit with the employer offering a matching contribution. The money must be used as a mortgage deposit otherwise the employee loses the employer’s contribution. Once the savings period has come to an end, deductions transfer to pensions savings. This type of scheme plays to the interests of many staff, and instils a savings habit.
Who’s to say that a student debt repayment scheme couldn’t be added to this concept, so the employees moves from paying off a student debt, then saves for a mortgage, then starts saving for a pension (and/or an ISA, share scheme, and so on).
Assuming it is the right decision for staff to put start or increase pension contributions then it is worth looking at them to commit to future increases in contributions.
In 2006, with a view to personal accounts, the DWP published a White Paper The Save More Tomorrow (SMarT™) scheme that was pioneered in the US and has successfully increased savings rates in US occupational pensions from 3.5%t to 13.6% in just over three years.
Recently UK employers (such as BMC Software) have implemented such a scheme for their workforces.
Of course, all this effort could be undermined if the investment and default options in the scheme are poor – but that is a topic for another day.