Our latest research findings show that already one in four businesses expect staff to delay retirement, with the proportion of pension-age workers set to double to 1.8 million people by 2019. Indeed, our study shows that larger companies expect to see an even greater proportion of their workforce working beyond retirement, with more than a third, 39 per cent of finance directors at larger firms expecting to have to accommodate requests from staff to work longer.
If personal accounts do go ahead, they will for the first time introduce the concept of DC pension saving to the mass market. We can only imagine the level of critical appraisal and attention the published investment return of the default fund will get. For the first time, many in employer-sponsored DC plans will have a direct comparator in performance terms in the public domain.
As defined contribution pots grow people begin to take greater interest in the potential outcome, with research from other developed markets suggesting that when the DC account reaches around one times annual salary people start to take greater ownership. We expect greater focus on the potential outcomes, and greater scrutiny of annual projections.
Once again, in employer-sponsored pension provision it feels like we’re swimming against the tide. Recent budget changes to limit tax relief for higher earners – also known as corporate decision-makers – and the threat of employers ‘levelling down’ from the proposed introduction of personal accounts can be viewed as benign influences at best.
Against this backdrop it will be more important than ever that we focus on what is good in employer-sponsored DC plans. Alternative savings products have their place, and their usage will depend on personal objectives. However, for a nation of spenders it is questionable whether a vehicle such as an Isa will help most save enough to retire with their desired standard of living. So in order to help manage the retirement ‘expectation gap’ we are going to have to reinforce the case for DC pensions to employees more strongly.
Do employees understand either the DC concept or end game when they first join a plan?
Evidence would suggest not, and this is particularly difficult when large numbers are enrolled in employer DC plans through auto-enrolment. It is also difficult to understand why often the maximum employer match is so undersubscribed, with clients in the past describing this as a ‘no brainer’.
If employees really understood would we see these outcomes with such frequency? It’s clear we need to help people understand the objectives of the plan and set out their personal vision.
Do employees understand either the DC concept or end game when they first join a plan? Evidence would suggest not.
DC providers should set out to tackle this up front, working with advisers, to give the employees an understanding of the choices they face, with the aim of facilitating a better chance of a positive outcome from the retirement saving they make.
The optimum way of doing this is to provide a large scale face-to-face capability, as research confirms that this is the most effective way of communicating with certain audiences. Where this is supported through employing new techniques, via the use of personalised and targeted communications, we can begin to deliver the ‘calls to action’ pertinent to each employee segment.
Communication design needs to help employees change the question from ‘what have I got’ to ‘what am I likely to get’. Online design in particular lends itself to highlighting the real time DC projection, and innovative techniques to push individuals to view their accounts online have to be the way forward.
In order for employer-sponsored DC plans to survive and thrive we must continue to educate and engage employees, taking care that we switch people on rather than off as a priority, always keeping the end result for individuals firmly in focus.