A report has found that a lack of communication is at the heart of the current pensions crisis and employers must engage staff using clearer, simpler language if they are to make any real impact.
The survey of 460 UK pension schemes discovered that more than half of the respondents wanted pension information to be made more accessible, with less technical language and greater explanation using plain English.
The information on offer is also far too generic with a third of workers wanting material used to explain their pensions better tailored to their particular needs.
The news compounds the current malaise concerning pensions with many people failing to save enough for retirement, companies closing schemes, and a final salary scheme black hole of more than £100bn.
Communication was an important theme in the annual Defined Contributions survey by HR consultancy Hewitt Associates. Paul Osgood, a communications expert at the firm, said UK employers must become savvier in the way they manage and explain pensions to staff.
“Our research highlights that communication is a critical piece of the jigsaw. One of the big problems is that pensions are normally dealt with in a very administrative way. The challenge for employers is to get staff interested in pensions,” he said.
“Employees are failing to understand the value of their employer’s pension provision and are not making informed decisions about their future. Employers are frustrated too, because they feel that their staff aren’t taking full advantage of what’s available.”
The research found that open defined contributions schemes now outnumber final salary pensions and that many employees don’t have a clear understanding of which scheme is the most suitable for their particular circumstances.
Most employees also have unrealistic expectations about the returns they will receive on retirement. “Employers need to close the communications gap if they want to avoid the problems and recriminations that could arise from staff facing retirement with inadequate pensions,” explained Osgood.
“People have to make informed decisions and this places a lot of responsibility on the employer. Companies that are successful are the ones that target separate groups of employees and communicate with them effectively,” he said.
Employers need to do more to explain to staff the benefits of having a pension because currently only half of the workforce joins a defined contributions scheme, where one is available.
Osgood identified five issues that HR practitioners should concentrate on to improve the way pensions are communicated, including better targeting, the use of case studies, cutting out jargon and developing clear objectives.
“Organisations are slowly becoming more sophisticated and when the penny drops they will reap the rewards,” he said.
Intervention also needs to come at a much earlier stage as many people don’t start thinking about pension provision until it is too late. The UK lags behind other countries when it comes to organising and developing pensions.
The government is debating ways of renovating the entire pensions system and this should lead to greater awareness of the benefits of planning for retirement. This means workers will start putting far more emphasis on pensions when they choose an employer.
“I think this simplification will force people to become more pension-literate. This, in turn, will make it more important to communicate better, because employees will become far more demanding on employers about pensions,” Osgood said.
Five-point pensions communication plan
Establish clear communication objectives
Use simple, everyday language
Target and tailor communications for different groups
Create realistic expectations over contributions, investment growth and likely retirement age
Use interactive communication or case study examples.