Recent proposed changes to the BBC’s defined benefit pension scheme have again sparked discussions about the pension divide between the public and the private sector. According to a report by the DWP, around half of all employees were members of an employer sponsored pension scheme in 2008. But while this includes the majority of public sector employees (80 per cent of employees or 5.5 million employees in 2008), only the minority of private sector employees are members (35 per cent of employees or 6.1 million employees in 2008)1.
One of the reasons for this is that most members in the public sector are in defined benefit (DB) schemes (98 per
cent of employee membership in 2008) while most employer-sponsored membership within the private sector is in defined contribution (DC) schemes (62 per cent of employee membership in 2008)1.
But can the DB/DC divide fully explain the 45% difference in employee take up? After all, even if you perceive DB as
the Rolls Royce of pension provision, isn’t it better to have a pension rather than have none at all? Large numbers
of people are making no provision for their retirement which will leave them potentially dependent on state benefits
and not able to continue the lifestyle they led before retirement.
Many employees do cite their pension as a reason to stay with their current employer and a quality pension scheme as a factor helping them to decide which employer to move to, but employers still feel that, as a benefit, pensions are not valued. So, what can be done? Employees need to be engaged with the benefits on offer and the best way of doing that is to empower them to take control of their finances. This will not only result in better appreciation of the benefit package, but also result in more motivated and less stressed employees. What the pensions
industry and the government have been trying to do is to increase engagement through financial education. You are more likely to achieve understanding of pensions, if you tackle it as part of a broader financial education then to concentrate purely on pension understanding. The
most successful way of delivering this knowledge is via a medium that theemployee can elect whenever is most suitable to them and an online facility fits that bill for many – some employers are even looking at the possibility of setting time aside to do this at work.
Industry pundits are suggesting that corporate platforms are the way forward for workplace savings – they offer choice and flexibility to the
employee – all delivered online. But do we expect too much of employees?
Corporate platforms provide more choice, more options within these choices and more responsibility.
Education and control are powerful motivators to dispel inertia and combined with the right online tools will empower employees to make the
right decisions for them. Online banking has raised the bar for what employees will expect to see and be able to do online and it has also raised
the level of online security that users expect. There are a lot of cues we can take from the customer experience delivered. But we also need to be aware that the best sites in terms of customer experience are not only intuitive but also offer support when support is needed and resolve issues fast. Users must be convinced by the quality of the experience as well as the safeguards in place to ensure their data are protected.
Employees must not lose faith in the platform because if they do that will reflect badly on their employer which will counteract the good will created.
But in the 21st century there must be a better way of engaging employees then compulsion and I truly believe that corporate platforms will deliver.
Martin Palmer
Contact: m.palmer@friendsprovident.co.uk
or follow Martin on Twitter: www.twitter.com/PensionsWomble.