Employee Benefits
How to engage employees with their retirement planning
17-04-2023
Pensions remain widely overlooked by employees. However, thanks to the work of financial wellbeing and education, employees do now appreciate the importance of pension schemes. Nonetheless, our employer’s guide to the psychology of workplace savings report found that a quarter of employees over the age of 50 still don’t understand their pensions – and this proportion only increases as we look at younger employees.
With financial education on the rise in schools and workplaces alike, we can look for this to improve in future workforces. Until then, employers must work with their people to boost awareness, understanding and appreciation of pensions – and the crucial role they play in retirement planning.
What’s the problem?
Although we have seen the number of people paying into a pension increase due to automatic enrolment, many employees remain under the impression that because they’ve been auto-enrolled, their employer’s contribution is enough. This idea is preventing real engagement with pension planning. Quite simply, the psychology shows that where someone has made a conscious decision to join a pension or make savings they will naturally be more engaged in the process.
Now that pension membership has plateaued, the challenge is: how do we engage employees that have been auto-enrolled, especially when the pandemic has eroded financial resilience for millions of employees?
It’s clear that the need for financial education has never been greater.
In order to look at how we can improve employee engagement, we first need to understand why employees are not engaging with retirement planning. There are a number of barriers that should be considered:
Present bias: we are naturally hardwired to prioritise short-term rewards over long-term goals. Employers need to consider how we can use psychology to overcome this natural barrier to engagement.
Information overload: there is a plethora of information and resources available to employees; this overload can prevent employees from engaging and understanding as it can seem overwhelming.
Hassle-factor: too many retirement saving schemes seem overly-complicated; they appear too much hassle and are continually postponed to consider ‘another day’. We tend to ignore making decisions in areas where we don’t feel confident.
How can employers help?
In changing the conversation and engaging employees, the most important participant is the employer. Studies have shown that people look to their employers to give them the right information and are more trusting of employers than banks or the pension savings providers.
Utilising this existing trust, there are four key steps that employers can take to increase engagement:
- Demonstrate return on investment (ROI): showing employees how much they will make and how much they need will significantly increase engagement. Employees are also more likely to engage with the idea of ‘investing’ rather than ‘saving’.
- Make retirement vivid: younger people need to be able to relate to the images and lifestyles being presented to them. Utilising technology here is key and will most likely be central to any successful engagement plan.
- Encourage visualisation: we currently ask employees to visualise their future selves, which can be particularly difficult for younger employees who don’t know where they’ll be in 30 years. Employers should get employees to think about their needs and desires instead. What kind of lifestyle will they want for their retired selves? The retirement living standards have already proved to be helpful in this regard.
- Using the right language: As with any financial education, it must be accessible. Employers need to use honest, direct and ‘jargon-free’ language to have any hope of engaging today’s workforce.
Many aspects of the employee experience have been overhauled due to the pandemic, which has made workplaces and company practices more human-centred and relatable. Now it’s time to overhaul how we communicate pensions; putting people and their psychological motivations and concerns at the forefront.
Originally posted on REBA
17-04-2023
