Pensions auto-enrolment is a hot topic right now, as smaller firms are going through the process for their staff, and most larger companies have already been through it. In this article, financial services expert, Roderic Rennison, takes us through how and why pensions auto-enrolment is an issue right now, and the four key things to consider to make your auto-enrolment a success.
Understanding the types and structures of benefits that meet employees’ needs, means that employers increase the likelihood of providing staff benefits that are both relevant and cost effective.
Read on to learn how it works.
The way it used to be
The last 60 years has seen dramatic changes in the way that pensions and other benefits have been provided by employers. The first 30 years after the end of the Second World War saw the rise of final salary defined benefit pension schemes. This was an era of paternalism and long-term single company employment where the employer bore the financial risk. It was also a time when the employee had little or no choice in the benefits provided beyond paying Additional Voluntary contributions to their pensions. Employees had to put up or shut up!
This was gradually replaced by a move to money purchase defined benefit pensions where the employee bears the financial risk. Increasingly – at least in larger companies – benefits being provided have some flexibility in how they are used by the employee. This has been largely made possible by advances in technology and the internet.
The biggest change has been in the expectations of employers and employees. This is because a job is no longer for life.
On the one hand employers know that they have to compete for the “right” employees and therefore need to provide benefits that attract, motivate and retain them. On the other hand, the employee needs to plan for multiple employments during their working lifetime and be equipped to make the right choices when given alternatives to choose from.
Why are things changing now?
The advent of pensions Automatic Enrolment (AE) has provided a new impetus for virtually all companies to either review existing benefits or to plan to implement a benefits programme for the first time. Their auto enrolment staging date – the date on which benefits have to be offered to eligible employees – has become a catalyst for decision-making.
Another important factor is that retirement no longer has to be taken at a fixed age, and so benefit plans need to be sufficiently flexible to accommodate this. We now increasingly talk about a retirement decade, rather than a retirement date.
What is success?
Effective planning and communication are the key success factors for the employer in providing relevant benefits that employees will value.
Planning is about setting a budget for benefits that can be maintained, and then asking employees what benefits they value the most and least.
Smart employers no longer decide what benefits should be provided without consulting their employees.
Experience shows that the cost of providing benefits that are not deemed relevant by employees is considerable. It is both a drain on company resources and fails in the fundamental objectives of any benefits scheme; namely to attract, motivate and retain employees.
How to communicate with your employees about benefits
So, what constitutes “good” communication? I recommend the following steps:
Awareness needs to be raised months in advance of any new scheme or changes to existing benefits. Employee engagement is key, so ensure that employees learn about the features and values of any new benefits in ways that suit them.
In the past, communication was often confined to brochures with the occasional group presentation. Today, online communication is more common – often combined with videos and/or interactive chat.
Good communication is even more important when employees have to choose between different options. They need to have a forum in which to ask questions and often learn well from examples of different benefit combinations that specifically relate to their situations.
The next stage is to help employees make their choices. This can be effectively done online. Help lines or chat facilities are being used more and more to maximise employee take up.
This is the point at which employees need to complete the relevant documents (usually online) and to be given a time limit to do so – or to opt-out.
Once your scheme is in place, you’ll still need to answer queries and to action any changes when requested.
It’s also important to measure the success of the scheme and collect regular feedback from employees – whether they joined the scheme or elected to opt-out.
- levels of take-up of both core and optional benefits
- content of employee satisfaction surveys
- exit interviews from leavers (to find out whether the benefits on offer were a factor in their decision to leave)
So what does the future hold? The use of technology increasingly means that more aspects of benefit provision will be online and less face to face.
This is a positive thing, as employees can learn, select and make changes in ways and at times that suit them. Also, employers will pay lower costs in terms of administration.
The only potential losers in this situation will be the benefit consultants, fund managers and insurers who don’t adapt. We’re moving into a new era where the involvement of a professional is optional, rather than required.
hibob is already part of the new world of employee benefits – designed to make workplace benefits seamless and cost effective. Delivering them in a way that reflects what both employers and employees want and need.
Roderic Rennison is an advisory board member at hibob. He is a Chartered Director with over 40 years financial services experience in a wide spectrum of roles including sales, product development, product procurement, provider management, strategy, corporate activity – acquisitions and integration, regulation, regulatory change and risk. When not helping great companies to become even better, he writes for his own blog at: www.rennisonconsulting.com.
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