It is not enough just to tell people they should save more – they need to be taken on a buyer’s journey says Punter Southall Aspire chief executive Steve Butler
Many UK companies are worried about how to close the pensions saving gap. Recent research from the FCA suggested that millions of people will have to work into their seventies or eighties if they want to maintain their lifestyles. It also found that around 15 million people, or a third of UK employees are not saving towards their retirement, and the state pension alone won’t maintain their standards of living.
According to research from Which? couples need to save £131 each month from the age of 20 to enjoy a comfortable retirement. Those who leave it to 50 would need to put away £633 a month – a massive £500 difference.
However, the message about saving more doesn’t seem to be getting through to everyone. Many companies still really struggle to get their people excited about pensions. How can they change this situation?
Corporate advisers have an important role to play in helping clients better engage their workforce in pensions, especially given the fact that workplace benefits and a good pension are a proven and powerful way of attracting and retaining employees.
Over the years we’ve talked to hundreds of clients about pensions engagement and communications and have noticed that many are making a couple of big mistakes.
Buying a pension should really be likened to buying a car. It is not a snap purchase. Before buying a new vehicle, people go on a “buyer’s journey” – moving slowly from the initial decision to purchase one, to contemplation, then they explore their options before finally, they are ready to whip out their credit card. The decision is not taken lightly, it needs time and research.
It’s the same with pensions. Employers often talk to their employees as if they are already at the final stages of their buyer’s journey – as if they have already decided to care about pensions, investment funds and retirement and just need to decide on the mechanics and the details. They send employees material about how much they should be contributing, tell them they can speak to a pensions adviser and encourage them to sign on dotted lines.
This approach may suit the people – usually older – who have already bought into the idea they need to save more. But it is useless for younger employees, who may not have fully understood why saving for the future matters or have yet to realise they may not be in a good financial situation when they retire unless they change their savings behaviour.
The second mistake companies make is simply telling people they “should” save more, which isn’t usually terribly effective. For people to care, they need be able to visualise the consequences of their financial decisions.
Employees need to understand how much additional money they will have in their pension pot in 10 years’ time if they increase their pension contributions by 3, 4, 5 per cent or more, and how this could change their lives. They need to see how small increases in savings will make a big difference to the pot they can build, and how it could allow them to retire earlier.
They also need to picture the different lifestyles they’ll experience if they retire with a pot of £50,000, or £250,000. What kind of car will they be able to afford? What kind of holidays? More basically, will they be able to heat their house or not? And they need to be able to put all this in the context of their wider financial affairs.
Advisers could be helping clients make pensions relevant to people personally, and advising employers to tap into their employees’ emotions, not just their logic. They can demonstrate ways to accomplish this practically by using savings portals, digital tools and resources to engage staff with pensions and communicate messages around the importance of saving more effectively.
One option is our new approach to workplace savings and pensions, called Next Generation Savings, which includes an online savings portal, digital tools and financial education as well as a five-step model to help employers transform their workforce savings culture.
Looking ahead to 2018, we want employers to realise that pensions engagement no longer needs to be arduous. Using smart technology, digital tools and compelling content can help employees better understand their pensions and change their savings behaviour to plan a better and more comfortable retirement.