A Q&A with Peter Hann, Associate Director, Reward & Benefits Consulting at Gallagher.

If employees face immediate financial pressures, are they more likely to switch off from paying into pensions?

Peter Hann, said: “Our research found that over two thirds (67%) of UK adults admitted to being concerned about their finances – with 8% having to use loans, overdrafts or credit cards and 19% depleting their savings to make ends meet. So for some people, suspending their pension contributions may seem like part of the solution towards combatting issues with money but the reality is that many employees will reach retirement age and will go into poverty.

“In view of the large number of people being impacted by the rising cost of living, we were surprised that 43.8% of organisations surveyed are not providing any form of financial education or advice to employees. However we have seen an upward trend in the overall provision of financial advice - where in 2021 it was 46.2% and 56.6% in 2020. While a decreasing number (21.9%) of organisations are offering group advice year on year (compared to 28% last year and 31.6% in 2020).

“The most forward looking employers are assisting their people to plan their retirement saving efficiently and 23.2% of firms are now offering access to an online solution (compared to just 20.9% last year). In addition, individual advice has slightly increased to 22.3% from 21.8% in 2021, and 25% in 2020.”

Are we likely to see more opt-outs from auto-enrolment as a result of the cost-of-living increases?

Hann said: “It’s inevitable that as finances are even more stretched, opt-outs will increase. However, given the challenges around financial worries, it’s encouraging to see from our research that 80.3% of companies are offering retirement savings in excess of the current statutory (auto-enrolment) minimum. Furthermore, there has been a significant increase in the proportion of firms with variable matched rates depending on employees’ contributions - with 37.8% citing this compared to 10% last year.

“In instances where the employer contribution is determined by job level/category, we could potentially see a spike in opt-outs or a decrease in the percentage people contribute from within the operative role category (for example, workers who operate machines or processing equipment) - as the median percentage employer contribution has decreased from 6% in 2021 to 5% of pay in 2022. With contributions shrinking in this area, what message does this send to employees who are already thinking of opting out? Although the business is reducing their costs in the short term, they need to be mindful of what this says about the organisation to its people – given one of the top leadership challenges is attracting and retaining talent.”

How can employers help address this?

Hann said: “The most effective communications are those that deliver the actions and outcomes companies are looking to achieve for their employees: Are fewer opt-outs really the right answer, or is it helping people make informed decisions through understanding the full range of benefits, options and support available to them? There are a number of solutions available which can assist the organisation with reviewing their pension schemes – potentially delivering cost efficiency to the company and improved fund performance for employees.”

What sort of pension’s communication is effective in this situation?

Hann said: “In Gallagher’s State of the Sector report, organisations said email announcements have reached near universal levels of use (94%) and are considered ‘effective’ by around 4 in 5 of respondents (78%). However, face-to-face channels are still considered the most impactful, whether in person or virtually, with more than 90% of respondents rating it as ‘very’ or ‘quite’ effective.

“19% of organisations who carried out an internal communications review, stated that this has not resulted in the introduction of new channels or the decommissioning of existing ones. It’s also worth noting, that only 14% of respondents told us that introducing new digital or social channels would be a priority for them in 2022 — suggesting that many businesses have the technology required, but just need to work out how to use it best. Making the most of what organisations already have in place, adjusting the timings, frequency, functionality or content on their existing channels, will instead lead to improved effectiveness and greater inclusivity.”