Employers should do all they can to promote the advantages of a good pension, says Sarah Vickerstaff
For employers and employees alike, we live in turbulent times with regard to pension and retirement choices. This much is clear: employers will continue to be under pressure to keep costs down, and many employees expect to have to work longer and retire later than they would have a few years ago.
This does not sound like a promising basis for a productive, new, work-based focus on encouraging people to save more for what is likely to be a longer retirement. Yet, precisely because we all face uncertain futures, we should focus on the benefits that can flow to employer and employee alike from a well-managed and marketed pension plan.
Contract-based defined contribution (DC) pension schemes have been increasing in popularity with employers. Given that organisations want to cut costs, the potential to limit their involvement by going the contract-based DC route may seem very attractive – no need to appoint a board of trustees or get involved in complicated communication with scheme members; the provider and/or pensions adviser can deal with all of that. But there are strong arguments in favour of the employer managing contract-based DC plans well, especially in the current economic climate.
Few of us find pensions easy to understand and few of us want to spend time thinking about our later years. The result is a widespread ‘live for the moment’, with the effect that many of us are not saving adequately for the retirement we want. In contract-based DC schemes, this trend is particularly damaging.
Most people do not actively manage their accounts – they simply do not know how to. In all DC pension schemes, there is a benefit to saving early, yet when my graduates ask me what they should ask at an interview and I say “ask about the pension”, they generally laugh. It is difficult to get twenty-somethings to think about saving now.
Why should an employer worry about these problems? Even with a contract-based DC scheme, the pension is still part of the employer’s overall remuneration offer to its employees. It can provide incentives or disincentives to join or stay with the organisation. With an ageing workforce in the coming years, pension and retirement issues are likely to loom ever larger as HR concerns.
Arguably, in the face of rising state pension ages and the phasing out of the default retirement age, more active age management will become a necessity for all organisations. No one wants a workforce of older people who are there only because they cannot afford to retire.
Giving employees good information about their pension will help them to recognise the plan’s value. Encouraging them to plan better for their retirement is likely to smooth their final exit. There are two aspects to improving communication: the financial advice that the provider can give independently, leaving the employer the task of setting the pension in its broader remuneration and career management context.
Pensions are nearly always the element of remuneration that is rated top by employees after salary. Yet research finds that employees tend to ignore annual statements and, even when there is plenty of information on demand about their pensions, they generally do not demand it. According to Happy retirement? The impact of employers’ policies and practice on the process of retirement, employees value retirement planning seminars, but generally feel that this opportunity to think about retirement in the round comes too late.
Providing channels for communication about career options, retirement aspirations and the pension aspects of these would put the often apparently boring news about pension forecasts in a more active and interesting context and sounds like good human resource management to me.
Sarah Vickerstaff is professor of work and employment at the School of Social Policy, Sociology and Social Research at the University of Kent
Happy retirement? The impact of employers’ policies and practice on the process of retirement, Vickerstaff, S, Baldock, J, Cox, J and Keen, L , Policy Press/Joseph Rowntree Foundation (2004).
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