 By John Lawson, Head of Policy- Corporate Benefits, Aviva
As more Britons are automatically enrolled into workplace pension schemes and awareness of the new auto-enrolment legislation grows, the conversations and challenges around the subject have evolved. Attention has always focused on how effective the new legislation will be in encouraging people to take practical steps to save for their retirement.
But it is employers and the broader industry that are facing the difficult task of influencing employee attitudes and behaviours towards saving at a time when the Office for National Statistics shows workplace pension saving continued to decline in 2012*.
Increase in awareness and approval
As the reality of auto-enrolment dawns, there has been an encouraging rise in awareness of the workplace pension legislation, thanks in part to the strong consumer campaigning from the likes of the Department for Work and Pensions. Aviva’s second Working Lives report – which tracks attitudes to workplace pensions, savings and benefits – shows that employer awareness of auto-enrolment now stands at 87%, compared to 77% in May 2012. Perhaps more significantly, employee awareness has increased from 31% to 59% over the same period.
This increase in awareness about the legislation is an essential stepping stone to getting people to actively think about their retirement savings before it is too late. While 62% of employees say they see pensions as the best way to fund their retirement, it does not necessarily mean that they will put money aside for the long-term. And neither does being aware of auto-enrolment – it is clear that a more active and sustained form of employee communications and engagement will be a critical success factor for auto-enrolment.
There are early signs that auto-enrolment could be gaining traction with employees. Some of the larger employers who have already staged have pointed towards much lower opt out rates than those indicated by our Working Lives research, which could simply show the difference between what employees say they intend to do, and what they actually do once they are auto-enrolled. And our research also showed strong support for the legislation – nearly two-thirds (65%) of employees say automatic enrolment will encourage saving and almost as many (59%) agree with the government’s decision to pass legislation to automatically enrol workers.
Will automatic enrolment be effective – and is it enough?
Despite these encouraging signs, there are still a concerning number of employees who are not taking advantage of the workplace pensions that are already available to them. Although 53% of UK employees currently have access to a workplace pension, only 38% of workers are actively contributing to one themselves – suggesting a gap between those who say they are considering saving for retirement and those who have actually taken steps towards saving.
Over a third (36%) of employees who currently do not have a pension say they will stay in their auto-enrolment scheme, including 6% who will ‘contribute more than the basic amount’. The difference between the proportion who intend to stay enrolled and those will contribute more than the basic amount is a worry, because it suggests that the majority who stay in their workplace pension scheme may well not prioritise increasing their contributions to a level that will result in a reasonable retirement income.
As well as minimising opt-out rates, the challenge of auto-enrolment is therefore to ensure that people do not stop thinking about saving for retirement once they’re automatically subscribed to their workplace scheme. We need to encourage workers to think more about their retirement and proactively seek advice on the amount they need to save to support themselves in later life.
However, 45% of employees who do not currently have a pension say that they cannot afford to contribute to a pension at all because they do not have any spare cash. A further hurdle for employers to overcome in their communications will be to persuade employees that saving for a retirement should be thought of as a priority rather than an additional, unnecessary cost.
Communicating the benefits to employees
It is encouraging that the typical employer says they will adapt their communication methods for younger workers who can benefit most from the new legislation, with a quarter (26%) explaining the tax and employer contribution benefits, 21% highlighting how they are giving away ‘free money’ and 18% saying they will talk less about retirement and more about long-term savings. Explaining the importance and benefits of saving into a pension will be essential to encourage the 28% of all workers who are undecided about whether to stay enrolled – up seven percentage points from May 2012.
Employers and the industry should now focus on communicating and educating employees on the benefits of pensions and saving for retirement, paying attention to the personal circumstances of their employees and tailoring their communication style to that favoured by each individual. For example, our report found that almost a quarter (23%) of employees say being shown ‘personally’ what they need to save would encourage them to save more, while 14% say being shown the benefits of saving and 12% being shown how to manage their money better would have this effect. By personalising the style of communication, employers can make the information feel more relevant to the individual employee and, in turn, they are more likely to make saving a greater priority.
Although there has been a steady increase in awareness of automatic enrolment, a greater level of understanding around pensions and saving for retirement needs to be promoted if we want to lead the undecided to stay enrolled and decrease the number of those who plan to opt out. Workers should be made aware that it is never too early to start saving, and that by opting out, they will essentially miss out on ‘free money’ from their employer – free money that could prove invaluable to maintain their quality of life when they leave the workforce.
It is therefore vital that employers assess how they intend to communicate the benefits of workplace pensions effectively to each employee. The key is to ensure they provide clear and tailored messages to help workers think seriously about how they will fund their retirement.
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