Thomsons Online Benefits today launches independent research conducted by the London School of Economics and Political Science (LSE), proving the value and causal link between companies’ investment in communication and increasing their employees’ engagement with their pension, ultimately improving their retirement outcomes. This is the first academic study of its kind and proves that the investment employers make in communicating pension schemes to their employees has a direct effect on their attitude towards a pension and contribution levels regardless of salary.

With auto-enrolment (AE) compelling companies and employees to pay a minimum level into their workplace pensions, the Government has set a new 1% contribution baseline for pensions. This is in stark contrast to the current mandatory 9% contribution businesses in Australia pay into employee pensions, which is rising to 12% in 2019. However, for the vast majority of UK employees, AE contributions will not be high enough to provide a comfortable retirement income.

“The challenge with auto-enrolment is that it’s mandatory which drives apathy rather than engagement among employees,” said Michael Whitfield, CEO of Thomsons Online Benefits. “Members are unlikely to appreciate, or act on this need by themselves, highlighting the crucial role employers play in helping their staff save for their financial futures. We believe auto-enrolment represents a great opportunity for companies to engage their people, support them in their pension planning while enhancing staff loyalty. Investment in communication is vital to ensure that employees actively engage in their workplace pension, understand it and recognise the value of it for a better retirement future.”

The independent research, commissioned by Thomsons and conducted by the LSE, considered pension engagement from three perspectives; as a personality trait, as an attitude, and as a behaviour. In other words it considered the extent to which people are prepared to defer their income, positively value a pension and act upon those intentions. Two sets of employees were compared: those that worked at companies who used a total rewards model including strong communication with employees (i.e. a variety of tools to attract, motivate and engage employees in their reward programmes) and those that were eligible for a company pension but were at companies who did not operate a total rewards model.

The first group, where strong communication was used around benefits, 20% are more likely to pay in at least 4% of their salary to the company pension scheme – this is important because it demonstrates the value of communication in increasing pension contributions above the AE minimum threshold.

“Auto-enrolment is a step in the right direction but there is a risk of a two tier pension Britain emerging - those that can afford to pay for advice and those that will be forced to go through NEST. Britain has reached a cross roads: auto-enrolment which breeds apathy or compelling employees to engage, take action now and have greater personal responsibility for their pension. Currently employers have no obligation to offer guidance or support to employees around their pension choice. However, if employers don’t support and educate their staff and help them fund for a decent retirement now, then society and ultimately the same businesses will pick up that significantly increased burden in 20-30 years’ time,” continued Whitfield.

Additional Key Findings

The second group where no total reward scheme operated was less informed in general around their pension contributions, their investment fund options and what they will receive in retirement:

 

  • Group A (where a total rewards model operated) was 17% more likely to be a member of their workplace pension scheme irrespective of salary level than Group B;
  • Group B was also less informed on pensions, with a quarter of them not knowing how much their employer was contributing on their behalf compared to 10% of Group A and almost 17% didn't know how much they were contributing themselves compared to 8% of Group A;
  • Group A was much more likely to understand the tax advantage of pensions than Group B.

 

“Our research found that a clear system of communication and open dialogue significantly increases employee engagement levels with a workplace pension and improves staff contribution levels above four percent,” said Dr Sandy Pepper, author of the report and Professor of Management Practice at the LSE. “Without effective communication around auto-enrolment there is a fundamental risk that people will not recognise the importance and value of pension contributions. This represents a missed opportunity for businesses and a potential headache for Government.”