Today there is a much greater appreciation of tailoring pensions messages, says Ceri Jones
Case study: Gap, Airbus Deutschland
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Employees will save more into a pension plan if they are regularly reminded it is there. Astonishingly, Age Concern’s To save or not to save: workers’ pensions and provision for retirement, published in January last year showed that 20% of those who were not members of their employer’s pension plan were never again asked to join the scheme after first arriving at the company.
Today, there is much greater appreciation of the value of tailoring communication programmes to suit employees. For young staff in particular, the whole area is generally a turn-off so employers are increasingly looking for new ways to get the message across. At media firm Emap, where the average age of employee is 31, for example, its literature features images of gymnasts to foster the idea that pensions are for the young. While at Gap, which also has a young workforce, the word pension is avoided in initial flyers.
Interactive tools that enable employees to project retirement income scenarios tend to boost membership rates. Wharton School’s Pension Research Council found that membership levels among employees on the receiving end of a low-communication programme were 62% compared with 84% for those targeted by a high-communication strategy. The two types of scheme were largely differentiated by interactive educational materials. Internet access to pension information also boosts contribution rates, particularly if potential members can play around with what-if scenarios to see what a difference saving early can make.
Staff often need to be given the time to read literature or to attend presentations and concentrate on the issues. Some employers arrange a briefing session during the working day or, for employees such as call centre workers for whom such sessions might be difficult to organise, a slot immediately before or after work. Briefings work best if followed up quickly, and communication on a regular basis is helpful even if there is nothing new to say. While communicating to staff at home is more expensive, this can boost take-up, possibly because staff have more time to examine the proposal and discuss it with their families.
Indisputably, the most effective way to boost take-up is auto-enrolment. Many lobbying groups, from Age Concern to the Association of British Insurers, favour this route. Employees are enrolled automatically into a scheme either on recruitment or after a waiting period, but are allowed to opt out at any time. However, this is not straightforward in the case of contract-based plans such as group personal pensions or stakeholder schemes, because employees have a contract with their pensions provider and some will require an employee’s signature as evidence of their decision to join.
One alternative is streamlined joining, under which employees enrol in a scheme by signing a simplified joining statement. This also produces good results, particularly if simultaneously supported by reminder letters or telephone calls.
A third strategy, meanwhile, is to set a deadline by which new staff must make an active decision whether they wish to join the scheme. This forces employees to think about the issue because taking no action is not an option. It is most effective where the workforce is financially literate.
Taking the horse to water is not the same as making it drink, however. According to Simplicity, security & choice, informed choices for working and saving by the Department of Work and Pensions (DWP), around 4.6m people have access to an occupational pension scheme but have failed to join. Often, it is simply a question of financial priorities. Nearly 30% said that they could not afford to make contributions.
Research by Hewitt Associates in the US, conducted to understand why employees do not take advantage of pensions where the employer matched a portion of their contributions, discovered that over half did not know the company offered a matching contribution. Nearly three-quarters, meanwhile, didn’t know the level of employer contributions and around half said they didn’t understand the investment options.
When an education programme was carried out on half of the study’s participants, the results were confounding. Even though staff learned about the potential gains from saving early on in their lives, and realised that they were losing out on an average of $1,200 a year in matching contributions, more than half remained undecided about whether they would put in enough for the company to match their contributions. Some 8% said the loss of employer contributions was not enough to make them change their minds; and only 15% of the 28% which said they planned to increase their level of savings actually did so.
One novel solution is to encourage employees, particularly younger ones, to save by making contributions to an Individual Savings Account (Isa) with the option of transferring this into a pension at a later date, or even to combine them across the two schemes. This can be attractive to younger staff because an Isa is more flexible than a pension arrangement and can be encashed at any time if needs be.
Without a reversal in pension scheme closures and greater success in encouraging those who are eligible for a scheme to save, the golden age of pension provision in the UK will end. Government figures claim the number of pensioners living in poverty has halved from 2.2m to 1.1m since 1996. But, by 2050, Britain will have fewer than two-and-a-half workers to every pensioner compared with today’s three-and-a-half ratio.
The problem is particularly acute for women. According to the Equal Opportunities Commission, one-fifth of single women risks poverty in retirement. Critically, the number of women saving for retirement halves when they have a baby, while the figure for men remains unchanged when they become fathers for the first time.
Case study: Gap
Gap employs 6,500 staff in the UK, predominately in stores across 140 locations, with 90% working on a part-time basis across a variety of shift patterns and days. Sue Hayes, HR consultant, says: "Effective and consistent messaging to this group is one of the biggest challenges we face. This is particularly true in more complex subjects and even more so when the mean age of the workforce is only 25 years and pensions are not considered a priority."
In 2004, the company reviewed its pension communications. "We wanted to ensure that the material and sources were more relevant to our workforce, that all employees knew they were eligible to join our scheme and felt enabled to make informed decisions. However, we believed our objectives could not be achieved with our existing provider or through existing schemes."
The company switched from a group personal pension to a stakeholder arrangement. The initial teasers made no reference to the word pension. Overall take-up of the pension scheme has almost trebled and, among sales staff membership has increased tenfold. Around 95% who attend a presentation join up.
"Employee contributions have also increased in a far higher proportion than employer’s contributions," adds Hayes.
Case study: Airbus Deutschland
Hamburg-based Airbus Deutschland runs an innovative scheme funding pensions for its 18,000 employees in return for overtime credits.
The aircraft maker developed the concept with Invesco, which manages the investment and admin of the scheme, as a response to discussions about raising the retirement age.
A portion of employees’ overtime will not be paid as salary, but credited to an account set up for their working life. Once an employee’s account achieves a certain balance, they can stop working and effectively retire early. However, they remain employed by the company until they fully retire. The scheme helps them to secure flexible work. Banked overtime from periods of high demand offsets periods of lower demand or early retirement.
Some 2,347 employees initially joined the scheme and the number has steadily grown to 7,162 members, 40% of those who are eligible.
With a continuous increase in participants, the firm expects a participation rate of over 50% at the end of this year. This unexpected success has been supported by strong performance during the last two years. For example, 20-30 year-old staff received a return of 27.70%.