The second article in our series of features, which are based on in-depth research by JLT EB into ‘under-saving’ in the UK and the role of the workplace, considers the importance of understanding workforce demographics.
By understanding characteristics such as the age, sex, personality type, education level, incomes and marital status of their workers, employers can be much more confident of encouraging the right savings behaviours.
'Hitting The Mark'
The current, largely defined contribution (DC) workplace savings environment entails a high degree of individual risk and responsibility.
Education, guidance and advice are important, but not everyone will use this support - even if available free of charge!
We can though learn from the success of auto-enrolment (AE) as to how we can keep ‘nudging’ people in the right direction without any requirement for action on their part.
‘Nudging’ also has application in helping older and more vulnerable consumers who might otherwise overlook or miss out on valuable options.
However, to ensure that the maximum impact is achieved from nudging techniques, employers need to first take the time to get to know their workforce and then segment employees. In doing so, employers will find that:
- they are able to communicate with their staff and support them more effectively; and
- there is greater appreciation of the remuneration and benefits package, which can be tailored to meet the different needs of different ‘constituencies’.
A successful reward and benefits strategy should be developed in line with the understanding that employee needs and wants are unique – one size does not fit all.
The need for employers to have a deeper understanding of their employees’ characteristics, wishes and priorities was recognised in the 2017 AE Review which observes that: “Interventions should be framed to meet the needs of the individual saver through understanding what those needs are”.
The JLT Way
Our approach to segmentation is to employ a suite of ‘Personas’ that can help employers to understand their workforce in greater detail. More information on the Personas is provided in our detailed research. We often support this through sophisticated surveying, helping to build a picture of the financial health of the employees of a business.
Analysing which personas are most prevalent within a workforce helps employers in deciding which aspects of the benefits package represent the most value to their workers, as well as identifying potential benefits to be introduced in the future.
It also becomes easier to communicate key benefits using the most effective tools and channels for different groups of workers and to better support informed decision-making at different stages of their lives. The rationale for this support being delivered through the workplace is explored in more detail below.
Help Employees To Help Themselves
When planning for later life, assistance is not just needed ‘at retirement’. Even the guidance available from the soon to be replaced PensionWise, for those aged 50 or over, may be ‘too little too late’ for many individuals.
Limitations of PensionWise/its successor could be addressed by a ‘mid-life MOT’, facilitated by employers, as proposed in the Cridland review. This check-up could help employees keep their retirement plans ‘on track’ because, where gaps are identified, there will still be time to fill them.
Also, recent changes to legislation have made guidance and advice through the workplace more tax effective. The Pension Advice Allowance (PAA) now allows individuals to access £1,500 (withdrawing up to £500 on up to three separate occasions) of their pension pot, tax-free, at any age, to redeem against the cost of pensions and retirement advice. Employers can make the PAA even more effective by combining it with the additional £500 tax exemption for employer arranged pensions advice.
Importantly, there is a demand from employees for more support from their employers. This is clearly illustrated in the findings from a 2017 JLT EB survey, which found that:
- 2/3rds of 40-60 year-olds want retirement planning as part of benefits package
- 85 per cent of 40-65 year-olds think employers should supply younger people with financial education
- Only a ¼ of 50-60 year-olds think they have received enough retirement planning information
- Only 23 per cent of employers currently offer retirement planning advice as part of benefits package.
Finally, whilst the reforms are welcome, following the introduction of the pension freedoms in 2015, support is not just needed up to the point that benefits are first taken. Making a decision to choose flexible access drawdown (FADD) at age 55, no matter how well-informed that decision is, does not mean that FADD will still be appropriate at age 70.
In the next article in this series, we will look the pension freedoms in a bit more detail and consider what they mean for employees in terms of both the accumulation and decumulation of their workplace savings. We will also look at some of the lessons that can be learned from other countries with developed pensions systems.
For further information, please contact John Wilson on 0131 456 6850 or at email@example.com