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What does good pension engagement look like?

As part of governance sessions with clients, we always take a close look at what engagement means for them. But what exactly does it mean to be engaged?

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

Keeping employees engaged with their pension is a prominent part of the day-to-day for many businesses. But what exactly does it mean to be engaged?

As part of governance sessions with clients, we always take a close look at what engagement means for them.

We look at some key areas of participation, track trends and help inform suitable actions to improve engagement. Member participation and attention are a vital measure of how engaged employees really are. But how can these two measurements be tracked?

Above the minimum

With the shift to defined contribution pensions, the amount people save towards retirement directly affects how much money they have to live on when they stop working.

Making a conscious effort to review the amount you pay in is a simple way of participating more.

The current State Pension, with full National Insurance record, pays a maximum of £9,339 a year. The gap between what you think you’re going to earn in retirement, and what many are set to receive, could come as a shock, especially if this isn’t picked up until it’s too late. So, there’s a shortfall in expected income that the workplace pension will need to fill.

Automatic enrolment has been a force for good in this area, even if it has come with increased duties for employers. But relying on auto-enrolment minimums alone is unlikely to bridge the gap. This has driven an increase to minimum contribution levels over the last few years and this trend may well continue.

That’s why it’s important to understand how much employees are participating, or in other words, paying into their pensions.

The increases to statutory minimum contributions could also mean that previously attractive employer contributions are less appealing to new joiners.

Examining how many members make use of a matching contribution structure, for example, can provide valuable insight into how highly members value what’s on offer.

Investing for the future

Whilst we think contributing above the minimum is a great start, it’s not viable for everyone. Investing is another way to boost the value of a pension, without having to pay more money in.

Understanding the investing habits of your workforce can be extremely beneficial. At Hargreaves Lansdown, we look at the percentage of your workforce choosing to invest outside of the scheme’s default fund as a key engagement metric.

This can be an indicator to how confident your employees feel with making their own investment choices and even their appetite towards investment risk.

It can also be useful in determining the content for wider financial wellbeing programmes. Investing continues to be a popular topic during the 1-2-1 meetings our Financial Wellbeing team hold with workplace pension members.

SEE MORE ABOUT OUR FINANCIAL WELLBEING SERVICE HERE

Are people making use of the range of investments? Are they aware of their options? These are good things to know. Even if employees are new to investing, we believe it’s worth getting involved when it comes to your pension.

Keeping track

There are lots of reasons why people transfer their pensions between providers.

Having multiple pensions can make it difficult to understand how much you’ve saved.

It can also be time-consuming speaking to numerous providers just to understand how much you’ve accrued in your pensions, or where you’re invested.

The Pension Tracing Service estimates that there’s around £20 billion in lost pensions.

Consolidating pensions is about more than just keeping things together for ease of management. Lost pensions can have a significant impact on the amount available to you at retirement. That’s why we look at the pension transfers as a measure of engagement.

In the UK, on average, we change jobs 17 times during our working lives. This means the possibility of 17 different workplace pensions.

The number of people transferring can also provide good insight into how well the change has been received by employees.

The digital age

Online banking has soared in popularity over the last few years, driven in part by its increasing ease of use. We don’t think looking after a pension should be any different.

Registering for online access is a really positive step on the journey to increasing a member’s awareness of their retirement goals.

Managing a pension is no longer a complicated task for members – digital platforms make it easier and more intuitive than ever before.

We believe that, by offering members a digital experience, they’re more likely to look at their contributions, learn more about investing or consider pension consolidation. Having immediate access to information online makes it easy to keep things on track.

Whilst it’s interesting to look at the levels of online registrations, it doesn’t necessarily tell the whole story. For example, someone who registers for online access but never logs on isn’t an indicator of positive engagement.

We think it’s important to see how and when members are making use of digital channels.

Avoiding undue stress

Nominating a pension beneficiary helps avoid hassle and stress for loved ones should you pass away. It’s an important nomination to make, especially as people tend to assume any life assurance nomination also covers their pension – which isn’t typically the case.

Without a beneficiary in place, it’s harder for pension providers to determine who should receive the money. Your nomination lets them know who you’d like your pension to go to and they need to take your wishes into account.

Other reasons to save or invest

Pensions are a great way of saving for retirement, but it’d be naïve to think that retirement’s the only financial goal people will have during their careers. Furthermore, some people may need to make use of other savings accounts for allowance or tax reasons.

Whether people are building an emergency cash fund, saving for a house deposit or are affected by pension allowances rules, understanding the wider savings needs of your workforce can help inform more extensive benefit offerings.

At HL, we offer a wide range of savings and investment products alongside workplace pensions. With that information available, we’re able to provide employers with a wider holistic view of their workforce’s financial needs.

Want to learn more?

We take pension engagement seriously. It’s important for employers to know how their employees interact with their pensions, how they compare with their industry peers and how it improves the retirement prospects of employees.

LEARN MORE ABOUT HOW WE CAN HELP WITH ENGAGEMENT

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

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