Energy company SSE doubled contribution rates in its auto-enrolment default after carrying out a survey of members, as wider concerns mount over continuing low contribution levels.
Last month, contribution data from the Office for National Statisticsraised concerns among the pensions industry that contribution levels would not lead to adequate retirement income for members.
SSE's survey – carried out in association with the University of Edinburgh – of around 9,000 of its defined contribution members sought to get a snapshot of financial knowledge and engagement.
It found large portions of the membership were not saving enough to comfortably retire and as a result, it has raised its default contribution rates to 6 per cent each from the employee and employer, from 3 per cent each previously.
Paul Mulhern, independent trustee at Scottish Pension Trustees, who is a trustee for the SSE pension scheme, said: “It doesn’t matter how clever the investment fund is if there’s no money in it.”
Members who pay the lower rate were given the option to raise their contributions in one go commit to raising them by 1 per cent annually over three years.
It doesn’t matter how clever the investment fund is if there’s no money in it
Paul Mulhern, SSE
But new joiners must actively opt out of the higher rate if they want to pay a lower contribution.
Around 1,300-1,400 members have so far raised their contribution to the higher rate. The scheme is now aiming to have half of its roughly 15,000 members paying the higher contribution level in the next five years.
Mulhern said roughly 50 per cent of recipients took the survey and the scheme invited around 100 members for further interviews.
Raising contributions
Lynda Whitney, partner at consultancy Aon Hewitt, said the two ways defined contribution schemes raise member contributions are through communication and auto-escalation.
“Auto-escalation is quite common,” she said. “People sign up to increase [contributions] over time as [pay increases].”
Alongside raising contribution rates, the SSE also began a communication campaign to educate members about their benefits and what they would need to save to achieve a comfortable retirement.
“We launched a ‘save more for tomorrow’ campaign and that’s simple, clear messaging about saving,” said Mulhern.
Karen Partridge, head of client services at communication consultancy AHC, said the scheme was right to capitalise on the high response to its survey.
“It sounds like they’ve really engaged people with it,” she said. “They have an opportunity to keep engagement high with ongoing communications.”
She added that once schemes have engaged members they can spur them to action by making the process as simple as possible.
“It’s not that people don’t realise they need to do something,” she said. “The issue is actually doing it because that takes effort. It’s about removing barriers to taking action.”
She gave examples of “straight-through processes”, where the time between information and a decision is made as short as possible.
