Automatic enrolment has been hugely effective in getting people into pension saving, but employers hold the key to its ultimate success.
The staging process for auto enrolment has come to an end, and the first increases in statutory minimum contributions took effect from April 2018. In conjunction with Harris Interactive, we surveyed 325 employers about their experience to date and their views on the next stage of the process. Within the group, responses were received from small (< 50 employees), medium (50 – 249) and large (>250) employers.
One clear outcome from the survey is employers care, with 77% believing a workplace pension to be an important benefit. Despite this, only 6% of those surveyed believe it is their responsibility to encourage their employees to save more. Interestingly, employers surveyed see this responsibility sitting with:
The pension provider
However, they recognise there’s an engagement issue with just 54% of employers believing their employees are significantly engaged with pension saving. When asked what they believe would prompt scheme members to increase contribution levels, employers said:
Improving member communications
Information on meeting retirement goals
A dashboard showing
all pensions in one place
Encouragingly, when asked, 57% of employers said they are likely to improve member communications in the near future. Even without prompting, 20% claimed “improving member engagement” is a future priority.
From April, statutory minimum contributions rise to 5% of which the employer pays 2% but experts acknowledge such contribution levels are unlikely to provide a comfortable retirement. However, employers are understandably concerned about the cost of contributing above the statutory minimum. Only 43% said they’re likely to do so, falling to 24% who see this as a priority. Only around one in five employers surveyed say they’d be prepared to contribute over 5% to their employee’s pension scheme.
While auto enrolment has got off to a good start, significant challenges remain with employees lacking engagement, and employers reluctant to contribute more than required. Perhaps drawing on experience of overseas models could provide the solution. Two thirds of employers surveyed expressed interest in the “Save More Tomorrow” concept where employees commit in advance to increase the percentage contributed each time they receive a pay rise. This may be more palatable, as their pension contribution increases at the same time as their take home pay.
73% of medium sized employers stated they’re not only likely to offer this option to employees, but also likely to match the employees’ increased contribution. As one in four employers say they’re likely to change provider in the next two years, with service and ease of set up stated as the main factors in this decision, the ability to facilitate “Save More Tomorrow” could also be significant in attracting their business.
The opinions of employers helped us shape our workplace pension solution, focusing on the things that really matter. Find out how a Royal London workplace pension might work for your clients.
Source: Royal London auto enrolment research, February 2018
Senior Business Development Manager
Justin Corliss is a Senior Business Development Manager with Royal London. Justin’s career in financial services began in his native Australia in 1997, where he worked for the Commonwealth Bank of Australia in client facing mortgage roles. Since moving to Scotland in 2002 he has held positions as a broker consultant for both Scottish Widows and Scottish Life dealing predominately with pensions. Before assuming his current role he worked as an Employee Benefits Consultant with a private firm. Justin holds the Chartered Institute of Insurance Advanced Diploma in Financial Services including AF3 & AF7.