Employee pension preference could brighten the DC picture

Hymans Robertson’s ‘Science of Attraction’ study, undertaken in partnership with the London School of Economics and Political Science, also found that emphasising the financial security of a role can make it 12 per cent more appealing.

If recognition of the effectiveness of this tactic became widespread at employer level, the result would be a trend towards increased pension provision in reward packages

Paul Walker, Hymans Robertson

The findings stand in contrast to a prevailing narrative of growing disinterest in workplace savings, especially among millennials.

Aiming to help HR directors improve the calibre of applicants responding to job advertisements, the research found a lack of attention to existing evidence on what makes roles appealing.

It noted that some factors that draw people to roles are those that are not easily changed, such as location, an organisation’s reputation, or opportunities for advancement.

However, referring to general employee benefits in terms of “prevention” – or the security provided to staff – boosted the level of applicants by 12 per cent.

Pensions a priority

Any mention of pension benefits was appealing to prospective employees. The study tested three scenarios, with pension implied as an employer contribution of 4 per cent, explicit reference to an employer contribution of 4 per cent, and with salary reduced to give a contribution rate of 10 per cent.

People preferred the higher proportion of benefits paid as employer contributions, even on a salary-neutral level. This made roles around 8 per cent more attractive.

Paul Waters, Hymans Robertson’s head of Guided Outcomes, said more work would have to be done to see if pensions could be presented in terms of the financial security they deliver, thereby doubling the boost to applicant numbers and quality.

“Showing contributions as a percentage of salary seems to be the simplest and most effective way to demonstrate the benefit on an advert... there is only so much space in an advert to give to pension benefits,” he said.

Waters said the lack of existing research on the topic has held back employer competition over levels of pension contributions, but that acceptance of the results could benefit the DC savings system.

“If recognition of the effectiveness of this tactic became widespread at employer level, the result would be a trend towards increased pension provision in reward packages. The wider benefits this would bring would help in tackling the UK’s undersaving crisis, but it would take time,” he said.

Promising signs?

That individuals are happy to accept less salary in return for better pension provision could spell good news for auto-enrolment.

With minimum contribution levels set to rise next year, concerns have been raised that opt-out rates will begin to go up.

Phil Farrell, partner at consultancy Quantum Advisory, said the interest in pension arrangements evidenced by the Hymans Robertson research may be somewhat limited to workers in white collar roles.

But he also said the success of auto-enrolment programmes is largely dependent on the efforts of employers.

“If an employer’s merely going through the motions, putting minimum contributions in, not engaging with their employees any more than they have to, then I think it’s probably not surprising that they’re not getting much buy-in,” he said.

He called the contribution inadequacy the “elephant in the room” in auto-enrolment discussions, and suggested that encouraging employers to increase contributions at the expense of salary could be a useful consideration, provided people retain the ability to opt out.

Make it easy for young generations

Nonetheless, both Farrell and Richard Butcher, managing director of professional trustee company PTL, agreed that younger generations are largely showing the interest in their financial health, which is necessary for DC outcomes to improve.

“They’re interested and they want to do the right thing, but mechanically it’s quite difficult,” said Butcher, explaining that savers come up against a “wall of complete confusion and complexity” when they try to engage further.

That confusion is due to the combined failures of the government, regulators and the pensions industry itself, he argued.

“The government could stop faffing around with the rules and changing them every five minutes,” he said. Meanwhile regulators should improve their communication policy, and the industry should focus on transparency and simplicity in product design.