By Mark Bingham, Partner, Secondsight.

 

Earlier this year, the Department for Work and Pensions announced that since the introduction of automatic enrolment in 2012, 10 million people have been auto enrolled in to their workplace pension scheme[1].

This is fantastic news for the long-term savings of the nation and for a generation that only seven years ago, it’s fair to say were on the brink of a pensions crisis.

Despite this success story, in just a few weeks’ time we will see automatic enrolment tested again, as the minimum contribution amounts increase for a second time.   By law, on the 6th April 2019 the minimum amount being paid in to an employee’s pension will increase to a total minimum of 8% of an employee’s qualifying earnings.  At least 3% of this must come from the employer, whilst employees make up the difference (5%).

The first contributions increase took effect in April 2018, with employees beginning to pay 3%, up from their initial 1%.  Statistics published after this increase found that opt-out rates didn’t increase, as anticipated[2].  And employers and industry experts will be hoping for similar results this time around as employees pay a further 2% in contributions.

When introducing automatic enrolment, I believe the Government made the right decision with the phasing of contributions.  As an industry I think we all felt that a matching 1% contribution wasn’t ever going to truly be enough to help individuals achieve the retirement they might want.  But, what it has done is set them on the right path, and created a savings habit that hopefully they’ll be willing to maintain with this next phased increase.

Our course the leap in this next phase of contributions is fairly minimal, but coupled with last year’s increase, for some, this may feel a little daunting.  So as employers, how can we manage this?

1)    Don’t keep quiet!  Remind your employees that this increase is happening so it doesn’t come as a surprise.

2)    Help your employees to understand what the increase might mean to them.  Remind them that the earlier they start to save in to a pension, and the more they save, the better their pension should be when it comes to retirement.  However far off it might seem right now.

3)    Provide a true example.  If you have the ability to, it can often help and may alleviate an employee’s fears if they can see how much the increase might mean to them.  They may even realise that this increase is more affordable than they first thought.

4)    Highlight that you’ll be paying more in to their pension too.  It’s important that your employees don’t feel they are being saddled with all of the costs of these increased contributions.  Remind them that your contribution is also rising and this will also benefit their long-term savings.

 

This rise in contributions, I believe should be seen as an opportunity.  It is currently the last legally planned phase associated with automatic enrolment, so we really should be helping our employees embrace this.

Going forwards, we shouldn’t get complacent that this means our employees are now forever saving enough.  It is important that we remind individuals about the importance of taking an active interest in their own pension and retirement savings.  As employers we are in the perfect position to facilitate this, utilising various methods including; annual pension presentations, individual pension advice sessions, pension provider tools, face to face and online education and communication tools to name a few.

Secondsight are employee benefits consultants.  Our passion is pension communication, financial education, advice, employee wellbeing and mental wellbeing.  If you are looking to review your pension and communication strategy, please contact us.

[1] https://pbs.twimg.com/media/Dz8BqciXcAABbXy.jpg:large
[2] https://www.theguardian.com/money/2018/aug/24/pension-opt-outs-have-not-jumped-since-auto-enrolment-rate-rise

Secondsight is a trading name of Foster Denovo, which is authorised and regulated by the Financial Conduct Authority.

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