97% of UK companies are currently experiencing significant pension inertia within their workforce, according to a study of over 100 organisations by LifeSight, Willis Towers Watson’s UK DC Master Trust.
The analysis, revealed that many employees are opting to stay in a default investment funds or only saving the default contribution rate into their pension, potentially missing out on matching contributions from their employer.
The top three reasons cited by employers for their employees neglecting to save more into their pensions were all based on other saving priorities taking precedence. Putting money away for a house or holiday was the biggest barrier to pension saving, with over half of employers (56%) recognising it. One-in-five employers (20%) suggested that the complexity and lack of understanding of the reward on offer was the main reason while 17% suggested it was an affordability issue.
Despite the apparent challenges organisations are facing in engaging employees in their pensions, over half (57%) admitted their pension communications are not personalised for the individual. Additionally, over a third of all organisations (37%) reported that they did not currently have any plans to play a greater role in the long-term savings of their employees.
Commenting on the findings, David Bird, Head of Proposition Development at LifeSight said:
“This is a worrying, but unsurprising finding. Employees focusing on short-term savings is a common challenge. Personalised pension communication could be an important way of addressing inertia in pension savings.
“With the recent increase in the State retirement age to 68 for many, employees will need to take a much more proactive approach to saving if they want to retire well or earlier. Providing engaging online tools which make member’s saving decisions more relatable can help nudge them into action, for example by helping them understand how it impacts the age at which they can retire.”
Richard Veal, Line of Business Leader (UK) Reward, Talent, Communication and Change Management at Towers Watson, added: “In 2017, there is no reason why the pensions industry should be lagging behind with outdated communication methods, such as paper statements and brochures. By analysing behavioural patterns underpinning saving attitudes and strategies, using modern technology and making pensions more relatable, the industry can become better enablers of pension saving decisions.
“With their significant access to and influence over the UK’s workforce, employers can also play a crucial role in driving engagement and ultimately help guide their employees to financial security in retirement. Good communication with employees will be critical in overcoming the UK’s current pension paralysis.”