Small employers are concerned about a lack of retirement saving among younger workers and exploring ways to increase pension engagement, according to new research from People’s Pension.
The master trust found that nearly three-quarters (74%) of the 500 decision-makers it surveyed were worried that their employees were not saving enough for retirement. A similar proportion (77%) said younger workers and low earners were more exposed to financial pressures, making them more likely to opt out of auto-enrolment.
As well as affordability, employees’ understanding of their pension and the perceived value of saving for the future were also influencing some workers to opt out, the research indicated.
The findings follow a period in which costs have been increasing for businesses as well as savers. Energy costs have been rising since Russia’s invasion of Ukraine in 2022, with increases exacerbated by the more recent military action in the Strait of Hormuz.
In addition, tax changes over the past few years have raised costs for companies, while impending changes to salary sacrifice rules will challenge the affordability of such arrangements in the years ahead. Three-quarters (75%) of respondents said such cost increases were limiting the ability to raise salaries.
“Even in a challenging environment, workplace pensions remain a key part of long-term financial planning. Supporting employees to stay engaged with saving, even at modest levels, can make a meaningful difference over time.”
Stuart Reid, People’s Partnership
Communication and additional guidance needed
Despite these pressures, People’s Pension reported that a significant majority (82%) of employers felt responsible for employees’ financial wellbeing.
Almost half (45%) of respondents highlighted that clearer communication and education around pensions would improve engagement. Two in five (40%) called for additional support in relation to financial wellbeing and retirement planning.
Stuart Reid, distribution director at People’s Partnership, which operates People’s Pension, said: “As many households face renewed pressure on day-to-day finances, helping people stay engaged with long-term saving has become even more important.
“What this research highlights is the importance of communication and support in helping employees engage with their pension. Where understanding is lower, simple and accessible guidance can play an important role in helping people make informed decisions about their long-term finances.
“Even in a challenging environment, workplace pensions remain a key part of long-term financial planning. Supporting employees to stay engaged with saving, even at modest levels, can make a meaningful difference over time.”
The role of targeted support
The Financial Conduct Authority (FCA) has recently published new rules around “targeted support”, designed to give financial services providers greater flexibility to support certain groups by highlighting products and services that could be appropriate for them.
Legal & General, Royal London and Quilter are among the firms to have received permission from the FCA to use the additional flexibilities since the regime was introduced at the start of April.
Separate research from KPMG, published last month, found that 44% of consumers would use targeted support services. The survey of 2,000 people also found that more than half (58%) had never accessed any form of financial advice.
Jane Wilson, targeted support lead at KPMG, said the demand and need for support among consumers “creates a once-in-a-generation opportunity to close the advice gap and support the UK’s ambition to create a nation of savers”.
“The onus is on providers to make sure they really understand people’s goals and, above all else, deliver careful, clear communication that actively encourages people to invest more at a time when concerns about financial scams are at an all-time high,” Wilson continued. “Trust is fragile, so if people feel sceptical, confused or overwhelmed when they first access financial support, the opportunity will be lost.”
