Aside from the fact that employers should want to do the ‘right thing’ in supporting their employees, being faced with an ageing workforce as a result of inadequate savings ought to encourage employers to take action on pension contributions.
Both auto-enrolment and the pension reforms have done a great deal to address the apathy of the UK population towards pensions. Employers should use this new environment of engagement to encourage pension participation and increased contributions.
Auto-enrolment has, quite rightly, been hailed as a success in getting more people into pensions saving, but there is a risk that simply being automatically enrolled may make some employees think they have done enough to provide for retirement.
Providing a high-quality pension scheme to employees is fruitless unless employers are able to communicate the benefits of it. Financial education is key to explaining the importance of making the right level of contributions. But it will only be a success if it goes hand in hand with an effective communications strategy.
Clear communications are of paramount importance in breaking down the barrier of complexity that can be one of the many issues preventing adequate employee pension savings.
Another action employers may take is providing for automatic increases in employee and employer contribution rates following certain levels of pay rise. Employer contributions are probably the biggest influence in encouraging increased pension contributions, as employees are more likely to raise contributions when the employer offers matched rates up to a certain level.
Clare Grice is a partner at Mills and Reeve