Taking the next step
Auto-enrolment has been an enormous success so far and employers have been behind this achievement, helping over eight and a half million people take the first step towards building a better future in retirement.
More than 855,000 employers have completed their declaration of compliance and £87.1bn was saved by eligible members in 2016. This level of participation has completely changed the pension landscape.
By 2020, we could well have ten million people saving for retirement as a result of automatic enrolment. But once we’ve got everyone in, we need to face the next challenge of getting everyone up.
Continuing the journey
Auto-enrolment was always intended to introduce gradual increases in minimum pension contributions, at set times.
|Date effective||Employer minimum contribution||Staff contribution||Total minumum contribution|
|Currently until 5 April 2018||
|6 April 2018 to 5 April 2019||
|6 April 2019 onwards||
Chart source: The Pensions Regulator, Ongoing duties survey – July 2017, Research report
The legal requirements for the April 2018 increase are similar to those for setting up the scheme in the first place, and non-compliance will result in fines and backdating of contributions
Most people agree with the government that current levels of savings are too low to ensure an adequate income at retirement and they acknowledge that increasing contributions is the right thing to do.
These increases do raise some concerns for employers. Employers are concerned that their employees will find it difficult to afford the new contribution levels and are more likely to opt out of their workplace pension.
However, as the employer you want to encourage your employees to focus on the positives and use the increases in contributions as an opportunity to help employees take the next step towards a retirement to look forward to. Let’s have a look at how you could do this.
Encouraging your employees on the journey
Once enrolled in their workplace pension, employees need education and motivation to encourage them to increase their contributions.
Affordability is not always the main barrier; perceptions have a big impact on their choices as well.
- An effective communications strategy may help employees see the value of their pension.
- Deliver quality communications with clear information on why this increase is necessary.
- Deliver communications that explain the difference it will make to their final pension pot.
- Communicate to employees in a way that resonates with them.
- Help employees understand how resisting short-term impulses can lead to long-term gratification
Education makes a huge difference.
Employers, supported by providers, can improve member engagement and address knowledge gaps through new engagement techniques for example:
- Behavioural techniques such as auto-escalation and nudge techniques
- Improved presentation of information; reduced text, greater use of digital media
and easily understood infographics
- More frequent communication at key points in an employee’s life
- A range of media to interact with – paper, online, apps, and phone.
- Remove the pension jargon and use language that is accessible.
The Pensions Regulator has asked providers to support employers with template letters for member communications. At Standard Life, we go one better, offering additional support through our ready-made communications focused on the minimum contributions increase.
Staying on top of the administration
Employers are also concerned about the administration side of the auto-enrolment minimum contribution increases.
For a smooth process, early preparation is the key to success. But with support from payroll and pension providers, this can be a simple task.
There are ways to reduce the burden – and our advice can help. Employers can tailor the way they phase their pension contributions to suit their business by aligning the phasing date with other key company dates. This will avoid potential duplication of efforts.