Pensions are rarely out of the headlines these days, whether it is yet another organisation closing its final salary scheme, or government projections showing we will all be penniless in retirement.
But just because we read about them all the time, does not mean we understand them. According to statistics from the Chartered Institute of Personnel and Development (CIPD), of the 51% of employees in an occupational pension scheme of some sort, one-third do not know what kind of scheme it is, and a staggering three-quarters have not worked out how much they need to retire. At the same time, most employees remain ignorant as to just how much the pension scheme costs their company.
For the average worker, pensions arouse some combination of confusion, cynicism and mistrust – and a big excuse for doing nothing about planning for the future.
Fill the gap
Employers have a responsibility to fill the information gap and provide clarity on the pension options they offer to staff, argues Darren Laverty, senior partner at employee benefits company Secondsight.
“It’s the moral responsibility of employers to get information to staff in a way that empowers them,” he says.
Yet too many employers bombard people with confusing volumes of generic information about different pension options and fund choices.
“One big employer has a choice of 50 funds to invest in,” says Duncan Brown, assistant director-general at the CIPD. “Just the summary of those funds was 100 pages long.”
Such an approach will fail to have impact when people simply are not prepared to part with their cash in the first place, says Laverty.
“Most people know that if they don’t save, they’ll have financial hardship [in retirement], but they still don’t do anything about it,” he says. “What’s the point of advising on fund choices when people are not motivated to save in the first place?”
Secondsight’s approach is to take employees on a ‘journey to the future’. When they see how little they will be able to afford, they have a personal reason to take action. With the help of a specialist adviser, employers then come up with a retirement planning strategy that will reduce the chance of staff ending up deprived in retirement.
Secondsight calls this their employees’ ‘second chance’ – staff never feel that they are out of pocket because they coincide increasing their savings with periodic pay rises.
“There’s a lot of psychology in it,” explains Laverty. “When the pain of the future is bigger than the pain of saving, they do it.”
Keep it personal
Personalising pensions is the key. Financial services company Friends Provident, which recently announced the closure of its final salary scheme for new employees and that existing members must either pay increased contributions or continue working to 65, had company directors lead personal briefings across all sites to discuss the changes.
The company also used its intranet to support the briefings and issued a comprehensive booklet to all staff detailing not just the new pension options, but a personal benefit illustration showing what each option would cost them, and what their benefit would look like at age 55, 60 or 65.
Budget planning tools are a good way of engaging staff, particularly when going through a change programme with pensions, says Friends Provident’s business services director Mike Hampton.
“You can develop or adopt online tools that allow staff to do some calculations, providing net costs of the different options [in the context of] their overall budgeting and allowing them to form the judgement. We’re saying: ‘We provide a pensions facility but, ultimately, it’s your choice’,” he says.
Peter Hurcombe, head of group pensions at the Royal Bank of Scotland, which has also made changes to its scheme recently, advocates a ‘drip feed’ approach to communicating pensions to employees. “Within reason, you cannot communicate too much or too often,” he says.
It is important for employers to segment communications on pensions, acknowledging that style and content need to differ according to age groups, Hurcombe adds. Some companies extend this principle to the actual media they use – for example, sending text messages or producing CD-Roms, as well as traditional print-based materials.
The personal touch may not always be possible, however. As more schemes move away from being trust-managed company schemes into contract schemes, such as stakeholder or group personal pensions, they tend to be run by a third-party insurance supplier, cutting out the employer altogether.
“There is no-one in the system with sufficient feeling of responsibility to actually own communication,” explains Mark Childs, director of consultancy Total Reward Solutions.
Whatever the nature of the scheme, it is down to HR to discover a role for themselves in leading communication on the issue, concludes Childs. “They need to build their understanding and appreciation of pensions as a subject,” he advises.
Nobody wants to spend their retirement scratching around for cash, and with the right communication and level of understanding from HR and reward specialists, they shouldn’t have to.
Top tips: communicating pensions
Make it personal – many staff perceive pensions as something faceless that they have no control over.
Make it real – by showing staff how much they will earn in their retirement and how this will affect their lifestyle, they will feel more encouraged to invest.
Make it easy to access and understand – by making pensions information available across as many channels as possible, and by using real examples of how the scheme will work, employees are more likely to understand what they’re being asked to sign up to.
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