How a data-led approach to pensions can help employers drive better pension outcomes

Pensions are the single biggest investment most employees will make during their lifetime, yet many are sleep walking into retirement instead of taking the action needed to build a pension pot to have a comfortable retirement.

Howden Employee Benefits & Wellbeing’s latest webinar entitled, ‘Pensions – the holy grail to member outcomes’ shared best practice on how employers can address this issue of inaction and encourage employees to take greater responsibility for their financial future.

Matthew Gregson, Head of Corporate Consulting and Jonathan Brown, Senior Workplace Pension Consultant at Howden offered insight into the latest thinking in pension governance and proposed a new model for employers to engage employees in closing the pension gap.

Research from Scottish Widows[i] last year highlighted that many workers are still risking a retirement in poverty, with two in five failing to save adequately and 15 per cent not saving anything at all. More than half (54%) of people continue to worry about running out of money in their retirement, a fact not helped by the impact of Covid‐19 on their personal finances.  

This issue is not lost on employers, as demonstrated by an online poll conducted during the webinar. It showed that over half of the participants (58%) felt that enhanced employer contributions are the biggest factor in driving better member outcomes – however, Howden says that reaching for the cheque book is not the most viable solution.

Jonathan Brown said, “Although HR teams would want to pay more into plans for members, from a business perspective getting additional budget to enhance contributions has always been a challenge, even more so now with the economic conditions caused by Covid.

 “And so, the biggest pension challenge is the ‘’zombie investor’’ – employees who join a company pension plan but make no active choices in how much they want to save or where to invest and have no idea how much they have in their pension pot.

 “We think the only realistic, affordable and impactful option for employers is to engage with their employees and encourage them to make more informed financial decisions. In a nutshell, to improve the chances of a comfortable retirement employees need to save more and invest better and employers need to help them do this.”

Matthew Gregson recommends employers take a data-driven approach to governance to encourage employees to take ownership of their pension.

Gregson says, “To encourage better pension engagement employers need to become more scientific and use data to drive greater member outcomes. Rather than look at pension governance as a tick box exercise, it should be used to look at the detail and identify which employees need which guidance and support. 

“Typically, pension governance only considers if the default fund is performing as expected and that charges are competitive. But this doesn’t tell the employer who in their workforce is saving enough and where people are on their pension journey.

“We believe there needs to be a complete mind-set shift away from governing at scheme level, to governing at an individual level. This means utilising data to see what action needs to be taken. Understanding where your employees are at is the only way to put effective measures in place to improve member outcomes.”

Finally, Jonathan offered advice for how employers can use that data to develop compelling financial education using a four-step model to analyse, education, facilitate and measure. He also recommends how employers can communicate at the different stages of an employee’s pension journey from joining through to accumulation and decumulation.

He adds, “It’s vital for employers to bring pensions alive through clear communications with a compelling message that encourages people to act. Data can help identify which groups to target so employers can tailor communications to their specific circumstances. It’s important to make it easy for employees to take action and measure their progress.

“At the core of this approach is technology, which is key in delivering information and giving employees the tools to check they are on track. Being able to visualise where they are at and the effects small changes can make over the lifetime of a pension can be really empowering for employees and encourage active engagement.”

A copy of the webinar recording is available upon request. Please email: [email protected]