How to improve understanding of pensions and long term savings in the workforce
Currently, only a third of UK workers are prioritising long term saving. Furthermore, of those that are saving for their retirement, many are not saving nearly enough. When we surveyed 5,000 British workers about their retirement savings, we found that employees are saving on average 5% less of their salary per year than they think they should be. To be specific, they’re saving an average of 9.5% of their salary, versus a perceived ideal of 14.3%.
While many of the population feel more adequately informed on other saving options, such as savings accounts, ISAs and mortgages, there are significant knowledge gaps when it comes to pensions. This gap in understanding could lead to an unanticipated shortfall for many people when they come to retire.
Organisations may come under scrutiny for this knowledge deficit if they fail to provide sufficient guidance and support to staff on pensions. It raises an important question: what can employers be doing to help their staff ensure they save enough, and invest wisely, so they can look forward to an enjoyable retirement?
For me, I believe the reason why people aren’t saving is down to poor perceived returns and a lack of confidence in making financial decisions. Below, I’ve outlined some key steps that employers should be taking to improve engagement and understanding in pensions and long term savings amongst the workforce.
- Make your pension scheme as user friendly as possible
Part of the reason why many individuals are failing to pay enough interest in their company’s pension scheme is the perceived complexity that surrounds long term savings. Essentially, people think that the options available to them are too complicated and therefore face difficult choices and so are put off from making any concrete decisions.
Employers must look to change this perception by making their pension schemes more user friendly and as easy to understand as possible for employees of all generations. Ensuring the choices available to members are presented in a way that breaks down the full range and complexity into a series of smaller decisions will avoid overwhelming members and encourage people to step away from the default where it may not be right for them.
- Keep communication high on the agenda
Each and every individual will have varying attitudes and priorities when it comes to savings and pensions. According to our research, this is resulting in a significant desire for pensions flexibility and choice. For example, some employees are prepared to work longer to grow their pot, while others put a higher priority on retiring at a certain age, even if they have a lower income.
Creating a two-way dialogue between the employer and employees will help organisations to understand exactly what their employees want from the workplace in terms of savings and enable them to tailor their communications and meet these individual demands.
- Adjust to changes in industry legislation
Our research shows that people expect the government to provide information to the public on pension reforms introduced in April of this year. However, with low levels of understanding around the impact of the reforms, our study suggests that Government initiatives, such as Pension Wise, which aim to educate people on the changes, will only get us so far. As a result, people are increasingly likely to turn to employers and pension providers to plug the information gap in the future.
Employers that take the lead in providing staff with suitable information on how these reforms will affect them, and offer transparent, insightful guidance, will reap significant benefits in terms of staff retention, recruitment and reputation.