Fraser Stewart, Business Development Manager, Capita Employee Solutions, shares his views on the storm brewing in the UK pensions industry.
For the vast majority of UK workers, there has been a significant increase in uncertainty surrounding the whole notion of retirement over the past two decades or so. The general shift from Defined Benefit to Defined Contribution pension schemes means that employees are now having to negotiate a whole series of unknowns as they consider planning for later life; uncertainty about how they can best plan for retirement, how their pensions investment funds will perform and, as a result, the age at which they will be able to retire.
The result of this uncertainty is an increasing level of anxiety about pensions and retirement. Many people feel helpless and not in control of their own future, and these negative emotions are compounded by a widespread lack of understanding about the current pension system. Employees simply do not have the knowledge and confidence to make informed decisions about their own finances, not just in terms of pensions but across all areas of personal finance. Financial literacy continues to be a huge issue within the UK population and more needs to be done, within schools, colleges and workplaces, to address this.
Encouragingly, our research shows that employers are serious about their role in supporting and empowering their staff to approach pensions and retirement planning in a positive way. Many are evidently recognising that it is in nobody's interests to have large sections of the workforce feeling anxious and out of control about their prospects for later life. They are devising financial wellness programmes as part of their wider wellbeing initiatives, to offer workers the information and support they need to feel more in control and aware of the options that are available to them.
What is absolutely critical is that employers and the pensions industry itself reflect on how they can best engage and educate people to deliver better retirement outcomes. Even now, so much communication around pensions continues to be littered with jargon and inaccessible, technical language that turns people off and intensifies feelings that pensions are simply too complex and too boring for the average employee. A lot has been said and written about the need to 're-brand' pensions to overcome current negative perceptions and there are certainly merits to this argument. Getting people to think about lifetime or long-term savings would certainly appear to many within our industry to be an easier task than yet another attempt to engage them around pensions.
Whatever label we give it, employers need to take a far more realistic, pragmatic approach to communications around pensions, recognising that most people find themselves with inadequate savings and little room for manoeuvre. Communications need to be simplified to give people the information they require in a way that is easy to understand and take action on.
Technology has a big role to play in driving meaningful engagement and education, and more and more businesses are embracing innovations in Augmented Reality and Artificial Intelligence to deliver more personalised communications, and to allow members to explore and visualise what impact the choices they make today will have on their future. Communications also need to become more relevant and timely - we're seeing far more sophisticated use of nudge communications, encouraging people to consider pensions around significant events such as pay rises, bonuses, marriage and having a child.
A more uniform or standardised way of communicating around pensions would also be beneficial - currently, the way that information is presented varies hugely between schemes and, for those people with multiple pensions, this adds further confusion and complexity. With this in mind, the government's Pensions Dashboard initiative is set to be welcomed and, as an industry, we need to work to ensure that this delivers on its objectives and provides people with a far clearer view of their overall pension position.
We're working with an increasing number of enlightened employers who are positioning pension provision right at the heart of their employer brand and looking to differentiate themselves in a fiercely competitive market for talent by offering highly attractive pensions. As our research shows, pensions are set to become a far more pressing priority for people over the coming years, and there are clear advantages for those employers that are seen to be leading the way in this area, in terms of talent acquisition and retention.
Many of these businesses are also taking a proactive approach to the ageing workforce question and adopting a holistic 'five generation workforce' strategy to ensure they can accommodate the vastly different needs and expectations of workers at both ends of the age spectrum. Over the next ten years, it's inevitable that millions of workers in the UK are going to need to work longer, many beyond the state pension age, and business leaders need to start putting provisions in place to accommodate these people, while also ensuring they have a way to bring young talent and new skills into the organisation at the same time. This requires a shift in thinking and a change in working practices and cultures.
As an economy we also need to consider the fact that many of the jobs currently done by older workers, for instance those within the retail sector, are those that are most at risk, either from changing consumer demand or automation and AI. There is a storm brewing and the government, business and the pensions industry need to work together to come up with sustainable solutions.
Our new research report, The Future Face of Retirement, explores in more detail what impact changing workforce dynamics and wider economic conditions are likely to have on organisations and their pensions provision over the coming years and how this will affect businesses and employees alike. Download the full report here.