With the introduction and prospect of employers having to auto-enrol their ‘eligible job holders’ into a pension scheme, starting next year, millions of employees will be saving in a company sponsored pension scheme for the first time. With such an influx of new entrants to both existing and new schemes this presents a significant challenge for the pensions industry. Notwithstanding the administrative detail that has to be considered, communication, engagement and education strategies will be integral to the governments plan to ensure that employees save for their retirement.
Recently there has been acceleration away from defined benefit (DB) schemes with a good number of employers expecting to close their DB scheme, not just to new members but to future accrual for existing members. Therefore for the majority of employers, this leaves a defined contribution (DC) scheme as the only form of pension available to auto-enrol employees into.
Managing the cost and risk, inherent in a pension scheme has given employers a headache for decades. We can now add employee appreciation of pension benefits to the list, as this will become one of the key challenges facing employers today. Employers will have to focus on conveying information effectively, it builds employee appreciation of the value of the workplace benefits being provided, which can help promote both retention and recruitment. However, the employer must be mindful of not crossing the line and straying into the territory of ‘financial advice’.
DC provision requires a substantially different level of communication from DB. Members have more decisions to make that have a real impact on their retirement savings. DC also has a reputation for being inferior to DB, a view that is likely to be strongest among former DB scheme members. For these reasons, I would suggest that communication has to be very high on the agenda for a DC scheme to be effective.
Employees often do not understand how their current benefits work. This creates a huge obstacle when communicating pension changes. In the DB world, most employees did not need to understand their company’s benefits plan; they just knew that they had a pension. But in the DC world, employees need to understand and be engaged in their benefits plan to maximise returns. It is easy to assume what employees know. Electronic solutions of communication are increasing in sophistication, but there is an assumption being made that an employee is fully conversant with pension jargon used. Considering the significant number of new members that will be drawn into pension schemes, communication strategies will need to start with the basics to help employees understand the whole process and how it pays to participate in planning for retirement. One of the best communication strategies is the option of face-to-face discussions, either on a one-to-one basis or through group staff presentations. There is nothing wrong with electronic communication, but this should be viewed as support to face-to-face interaction and to adopt a balanced approach combining different communication media.
Younger members are likely to have different concerns and interests to those close to retirement. Many members will always wish to take the passive default approach, while others will be keen to take active control over the contributions and investments. Trying to meet all these members’ needs through a one-size-fits-all communication is likely to end in failure.
The key to successful DC communications is understanding members and segmenting the audience. Different groups within an employee population view pension plans differently and it is important to address the needs of all employees. You do not want to over-communicate with people who are clearly not interested, but you need to provide enough information for those who are.
Employee engagement is a key measure of the success of pensions' change. The result is an engaged workforce that is aware of the benefits on offer and actively participates in making regular choices about savings.
Employers and trustees have the opportunity to have a proactive, responsive reaction to the difficult challenges ahead. If communications are well managed, the government’s aim of delivering retirement solutions to the majority of employees might just help private schemes do just that.