Employers and consultants need to tap into employees’ concerns for the future in order to help them prioritise saving for life in retirement.
Pensions have become so complicated that providing financial education for staff around the options open to them is virtually essential.
Graham Cooke, senior consultant in the private clients team at Jardine Lloyd Thompson, says: “Pensions [complexity] makes financial education vital. Some 20 years ago, there was little choice in pensions. Now there’s so much that people don’t know what to choose. Unless you address that, you’re not doing them any favours.”
But David Bird, principal at consultants Towers Perrin, warns employers that staff interest may be low when it comes to taking advantage of financial education around pensions. “When you look at what people say about pensions, you see how turned off they are,” he says.
Experts say employers organising seminars on the subject should avoid the use of the word “pensions” as much as possible. “If you mention pensions, you won’t get much of a turn out,” says Cooke. Instead, any financial education session that covers pensions should be couched in terms of saving for the future and cover issues such as investment strategy and risk. Bird adds: “Start with what they know about but don’t start with pensions. Talk about how to get the right returns, the best way to save, how to invest and so on.”
He believes that the industry has been trying to sell pensions in the wrong way, focusing on the features, such as tax relief and spouse’s pension. Instead, employers and consultants need to tap into people’s concern about their future, so that they prioritise saving. He concludes: “We’ve made a pig’s ear of it as an industry. We need to change what we do.”
Where employers provide pensions information to staff generally this is unlikely to give rise to an employee benefit tax charge. However, where an employer pays fees to an external provider for one-to-one advice sessions for employees then, as a general principle, a tax charge will arise on the cost of the advice. However, there is an exemption from the benefits charge of no more than £150 per employee per year provided similar advice is offered to all staff and is limited to pensions.
Jamie Dick, occupational pensions manager at Scottish Life, suggests that workplace communications does not have to be expensive as providers can help. For example, his company produces posters and tent cards to be displayed in the staff canteen. Basic materials such as these, booklets, letters and so on tend to be included in the overall price of running the pension scheme. Web pages and DVD presentations can cost extra depending on the depth and level of demand. “We absorb a lot of the cost. We offer a menu of options and the employer can choose their level of service according to budget,” he says.
Where employers are minded to organise group presentations for staff, Bird recommends segmenting the audience. “People think in life stages. It’s no good giving the same presentation to a middle-aged employee with kids as to a 25-year-old with student debts.” Marketing materials also need to be segmented to ensure that the content is meaningful and relevant to its audience. This could mean sending out literature tailored to different employee groups with appropriate case studies for example.
Pensions modellers and calculators are another way of potentially increasing interest. But, Bird says that not all of them are flexible enough to accommodate employees’ circumstances. “You put this figure into the modeller and it tells you how much you’ll get in retirement, but people’s lives are not like that. They will have sources of income and capital from elsewhere.”
He also argues that the people who like using modellers tend to be already engaged on the issue of pensions and warns that “you can end up just depressing people”.
Financial education about salary sacrifice on pensions is another way of boosting interest in the benefit. Cooke describes salary sacrifice as a “huge opportunity”, adding, “Why pay NI if you don’t need to?”
Bird, however, is more sceptical. He acknowledges that it is probably most appropriate for large companies with flexible benefits schemes. He adds: “If tax [benefits aren’t] going to get people to save for their pension, neither will national insurance [savings].”