For small and medium sized business owners, getting set up for auto-enrolment was no small feat back in the mid-late 2010s. The good news is that this hard work has played a big part in getting us to the point where 88% of eligible UK employees (20.4 million) now participate in a workplace pension[1].
Today, many employers still view workplace pensions primarily as a legal obligation. But while auto-enrolment was a crucial first step, the workplace pension landscape has evolved significantly since then, with greater flexibility and lower costs now available. And with 90% of employees stating that their workplace pension influences their decision to change or remain in their job[2], now could be a very good time to take a fresh look at your pension scheme for employees.
More competitive charges
The workplace pension market has matured and there is increased competition between pension providers, with more cost-effective and flexible schemes now on offer compared to when auto-enrolment was first introduced.
The Annual Management Charges (AMCs) - fees pension providers charge for managing your employees’ funds – are increasingly variable, so it’s important to shop around to ensure you’re still getting the best value for your business and your employees.
We recently helped a client negotiate a reduction in their AMC from 0.75% to 0.27% (a 64% decrease) resulting in significant savings for their employees. On a £30,000 fund, this reduces the annual charge from £225 to £81, saving £144 per year. Over time, this can greatly increase final pension fund values.
Re-engage employees with your pension scheme
Whether or not you decided to make any changes to your firm’s pension scheme, one of the most valuable things you can still do as a business owner is communicate the value of your workplace pension to employees.
Actively engage your staff with the details of their pension scheme, using clear communication to ensure they fully understand the pension plan they’re in, their retirement options, and how their investments are being managed. This understanding should mean employees are much more likely to appreciate the importance of their pension as part of their overall benefits package, which in turn can help you with both retention and recruitment as an employer.
Even with the popular uptake of auto-enrolment, people’s awareness and engagement with pensions is still low, with research from one pension provider revealing that nearly a third of UK savers don’t know how much is in their pension pots[3]. Regularly updating your employees about their pension performance, what investment options are available, and how they can adjust their contributions can help increase engagement and participation rates, as well as reduce employee turnover. Transparency about costs and charges is essential to build trust and ensure employees are confident that their pension is offering good value.
Take a closer look at employees who may have opted out
A growing number of younger workers are choosing to opt-out of auto-enrolment[4] as they face more immediate financials pressure from student loans and the rising cost of living, while retirement seems far off in the future.
For women, the pension gap remains a concerning issue. Women often face pay gaps, career breaks to care for family, and are more likely to be in part-time work. All this can make it harder to see the immediate benefit of contributing to a workplace pension, reflected in recent data from a survey of 5,000 people which found that 10% of women aged between 22-29 had opted out of their workplace pension[5].
It’s really important to encourage these employees to reconsider their opt-out decision as it can have a huge impact on their future financial security.
Tailored communications can help these employees understand that even small contributions early in their careers can accumulate significant value over time, as well as highlighting the tax benefits and contributions from you as an employer.
Why communicating pension benefits is important
If employees see their workplace pension as a valuable part of their future, and not just something they ‘have’ to do, they’ll be more likely to be engaged, contribute more, and even have a greater sense of loyalty to their employer.
Reviewing your current pension scheme and making sure it’s still competitive in terms of fees and services is an important first step. Additionally, taking the time to communicate with your employees about their pension options, especially those who may have opted out, can lead to better financial outcomes for your workforce – and a more engaged, loyal team.
[1] Source: https://www.gov.uk/government/statistics/workplace-pension-participation-and-savings-trends-2009-to-2022/workplace-pension-participation-and-savings-trends-of-eligible-employees-2009-to-2022
[2] Source: https://getpenfold.com/employer-tools/workplace-pensions-benchmarking-report
[3] Source: https://peoplespartnership.co.uk/media-centre/press-releases/one-in-five-savers-have-never-checked-their-pensions-research-by-the-peoples-pension-reveals/
[4] Source: https://news.sky.com/story/amp/more-young-workers-are-pausing-pension-contributions-this-is-how-much-its-costing-them-13104356
[5] Source: https://www.scottishwidows.co.uk/about-us/media-centre/press-releases/quarter-of-women.html