Article How to engage your employees with their pension

Whether your employees are engaged with their pension or not, encouraging them to make the most of their workplace pension could help them build a strong financial future. The earlier they start saving, the more time they’ll have to prepare for the lifestyle they have in mind for their later years.

Here, you’ll find 7 sections to help your employees engage with their pension:

1. What makes a comfortable retirement?

2. 6 ways to engage your employees with their workplace pension

3. What stops employees from engaging with their pension?

4. Key pension questions from your employees

5. Understanding auto-enrolment in the workplace pension plan

6. Tips to help employees be proactive with their pension

7. Explaining salary sacrifice

1. What makes a comfortable retirement?

Research from the Department for Work and Pensions has shown that saving for the future has never been more important. In the UK, 38% of working-age people – that’s 12.5 million of us – are under-saving for their retirement.¹ Currently, a single person needs an income of £23,300 a year to have a moderately comfortable standard of living in retirement.² But this figure will depend on what each person wants to do when they retire.

Knowing where to start or what goals to aim for might at first seem difficult for your employees as they try to think about saving for their future. A good starting point is to ask them what they want to do and how much money they’ll need to fund the lifestyle they’d like when they stop working.

2. 6 ways to engage your employees with their workplace pension

1. Educational workshops

Face-to-face or digital financial guidance sessions from external experts could improve financial literacy across your workplace. Running this type of workshop a few times a year might help to reinforce any key learnings. Try scheduling these events around notable dates, like when bonuses or annual statements are received, or at the end of the tax year, for a chance of greater impact.

Find out more in our article How to improve financial literacy among your employees.

2. Explain the key concepts

Consider demonstrating how pension contributions can add up over the long term. You could explain what the company contributes and how they can make the most of this. If your organisation offers salary sacrifice, show how this works and the tax advantages it can bring. Signposting ways to track down old pensions, reminding them to keep their details updated and to log in to their pension scheme online (if this is an option) are also worth thinking about.

3. Clear messaging

Use jargon-free language to get your message across. Aim to communicate in a way that’s clear and straightforward, as your employees will likely have different levels of pensions knowledge. Make use of any templates your pension provider shares with you and tailor communications around your own company pension scheme.

4. Signpost digital tools

With apps, videos, portals, and calculators, employees can interact with their pension through their smartphone or other devices.

•  Our ‘Your retirement planner tool’ lets them compare what they’ve saved to what they’ll need in retirement and review their retirement options.
•  If you have a TargetPlan workplace scheme with us, they can log in to access modelling tools to forecast their savings.
• MoneyHelper’s Pension Calculator can demonstrate how their pension contributions could add up over time.

Our pension engagement specialists, Pension Geeks, have delivered a digital library for them to access too. You could also point them to the Pay Your Pension Some Attention campaign.

5. Explain investments

Better understanding of how their money is invested could empower your employees to make decisions about their own pension savings. This may include investing in line with their values if your company pension scheme offers sustainable investment options. It should also cover risk and the possibility of losing more money than they put in.

Your workplace scheme adviser can help with this and remember, the value of any investments can fall as well as rise and returns are not guaranteed.

6. Promote a culture of saving

Our financial wellbeing page has a range of resources for you to start meaningful conversations to promote financial wellbeing in the workplace. Encouraging your employees to own their financial decisions and plan for the future, could help them think about if they’re contributing the right amount towards their retirement.

Read more in our infographic on how to engage employees with their retirement savings.

3. What stops employees from engaging with their pension?

If you want to encourage pension engagement in the workplace, it’s useful to know what’s standing in people’s way. Here are some common obstacles that might prevent your employees from making the most of their company pension scheme.

The cost of living

When people are facing economic struggles, long-term savings can be one of the first things they cut back on.

According to the Pensions Management Institute, one-third of savers either reduced or considered reducing their pension contributions in 2022.³ It found that 13% had reduced contributions, 7% had stopped them altogether, and 20% were thinking about reducing their pension savings because of cost pressures.³

While this might be a short-term fix for people struggling with day-to-day expenses, it could be detrimental to their long-term financial security. You can help your employees understand the true cost to them if they stop paying in. For example, they might miss out on your employer contributions, potential investment returns and, if eligible, government tax relief.

You might encourage them to reduce rather than stop their contributions altogether. To find out more, your members can read our article on the impact of pausing pension contributions on our money tips hub.

Budgeting support could also be beneficial for your employees. Point them to MoneyHelper’s budgeting tools, or our money tips hub which features an article about different budgeting methods.

Current priorities

For younger employees, retirement may seem a long way into the future. They may prefer to focus on more immediate goals such as buying a house, paying off student loans, or building up an emergency fund.

You can support them in both managing their money today and adopting healthy saving habits for the future, by signposting budgeting tools and useful resources like our financial wellbeing index. By having a sound understanding of their pensions now, it could help them be more prepared once they do have spare cash to put towards their long-term savings.

Read our article to learn more about what stops young workers engaging with their pension.

4. Key pension questions from your employees

You’ll probably be the first point of contact for employees who have questions about their workplace pension. You can become a trusted source that can point them in the right direction for further guidance. For those who are less engaged, hosting regular Q&A sessions might pique their interest, or at least keep long-term saving on their radar.

Here are some questions your employees are likely to ask about pensions, and some answers you might find useful when talking to them.

Q: How do pensions work?

Contributions

If you qualify for auto-enrolment, you'll be automatically enrolled into your employer’s workplace pension scheme. A minimum of 8% is paid in between you and your employer. Typically, your employer pays in 3% while you contribute 5%, but this may be different depending on the type of workplace scheme you’re enrolled in and if your employer chooses to contribute more.

If you haven’t been auto-enrolled into a workplace pension scheme, you may be able to opt in. Your employer will be able to share information around how much you need to contribute as well as making clear if they’ll also pay in and the amount.

Once you’ve joined your workplace pension scheme whether that’s through auto-enrolment or choosing to opt in, you might be able to contribute more than the minimum 5% if you’d like to save more towards your retirement.

Investing

Contributions are invested by a professional investment manager into investment funds. These are collections of assets like company shares, bonds or property into which investors’ money is pooled. You can select a number of funds depending on the range your pension provider offers, which may include sustainable fund options.

If you have an online account with your pension provider, and depending on what products and services they offer, it could show how your pension pot is allocated. You might have the option to read fund factsheets to learn more about the type of investments held in each fund and see how your pension pot has performed over time. Remember that the value of your money can go down as well as up, and investment returns aren’t guaranteed.

Withdrawals

In most cases, the earliest you can access your pension savings is age 55, but the minimum age is increasing to 57 in 2028. There are different ways you can choose to take money out, including:

• Income drawdown, where you take an income from your pot while leaving the rest invested.
• Lump sum withdrawals when you need them.
• Buy an annuity which gives you a guaranteed income for life.

Usually, when you start to take benefits, up to 25% of your pension fund can be paid as a tax-free lump sum. This information is based on our understanding of current taxation law and HMRC practice, which may change.

The Government-backed MoneyHelper and Pension Wise services are sources of impartial information and guidance which you may find useful.

Q: Is my pension on track?

It really depends on what you want your retirement to look like. Will you be mortgage free? Will you have expensive hobbies? Frequent holidays? Your desired lifestyle will determine how much money you’ll need. Once you have a figure in mind, you can use a pension calculator to work out whether you’re on track to achieve it. Your pension provider may also have its own forecasting tools.

Q: Should I combine my pension pots?

Some people will have a number of pension pots if they’ve worked for more than one employer. Combining these pension pots could reduce time spent on pension admin and might give better visibility and control of your pension savings.

Combining a pension may not be the best option for you. You may lose features, protections, guarantees or other benefits – so make sure you compare products before combining. It’s up to you to decide if this is the right decision for you. If you’re not sure, speak to a financial adviser – there may be a charge for this. MoneyHelper has an online guide to financial advice including information on charges.

It’s important to remember the value of your consolidated pension pot can still fall as well as rise and the final value of your pension pot when you come to take benefits may be less than has been paid in. Any new funds you move your money into will have their own set of risks that will be detailed in the fund information available to you.

Q: How can I find lost pensions?

Checking documents at home and contacting previous employers can be a good start. The Government has a free Pensions Tracing Service which can help you track down old, forgotten workplace pensions from previous jobs. Aegon’s money tips hub also features hints and tips on what you can do if you have multiple pension pots.

Q: How does the State Pension work?

The State Pension is a regular pension you get from the Government once you reach State Pension age, which is currently 66 but is set to rise. Whether you qualify, and how much you’ll get, will depend on your National Insurance record (usually based on contributions you’ve paid over your lifetime). You need 35 years on your record to get the full amount, which is £10,600 a year in the 2023/24 tax year.⁴ You might be able to make voluntary top-ups to your National Insurance contributions to fill any gaps in your record – you can check your record on the Government’s website. The new State Pension is not paid automatically, you must apply to receive it.⁵

Want to know more? Read our article for a more detailed look at the five key questions employees may have about their pension.

5. Understanding auto-enrolment in the workplace pension plan

Just over a decade ago, the Government made it mandatory for employers to automatically enrol eligible employees into their workplace pension scheme to help more people save towards their retirement. Since then, more than 10 million people have been automatically enrolled into workplace pension schemes.¹ Participation of eligible employees in the private sector increased from 41% in 2012 to 86% in 2021.¹

With auto-enrolment, there are minimum contribution levels for both employer and employee which are paid in automatically, unless the employee opts out within the first month of being enrolled. Just five years after it was introduced, auto-enrolment had reduced the level of under-saving in the working-age population from 14 million to 12 million individuals.¹

While this is good news, our research with the University of Edinburgh into the impact of auto-enrolment, highlighted that it has had some drawbacks relating to the power of inertia or ‘going with the flow’. This is because some savers believe auto-enrolment covers how much they need for retirement – or that they don’t have to pay attention because it’s being done for them.

Even though auto-enrolment automatically enrols your eligible employees into your workplace pension scheme, they should still consider reviewing their monthly pension contributions to check they’re at the right level for what they need. 

Read a summary of the report on how auto-enrolment has impacted attitudes to saving and what it means for you as an employer.

6. Tips to help employees be proactive with their pension

Financial education

As an employer, you can play a part in improving engagement through financial education. Consider bringing in a financial adviser or pensions expert to deliver an auto-enrolment crash course. You could teach them about pensions tax relief. Or remind those paying in the default amount that it doesn’t mean they’ll automatically have enough to be comfortable in retirement. Perhaps encourage them to use a pension calculator to see how much they really need to save for the future they want. They can visit the MoneyHelper website to try out a pension calculator.

Plans and prompts

It’s important for your employees to know how much they’re saving and whether this aligns with their long-term goals. You could encourage them to create a written plan to gain more clarity around their priorities and retirement preparations. Read and share our guide to creating a retirement plan, which you’ll find on our money tips hub.

If you offer contribution-matching as a company benefit, consider reminding your employees of how this works. They might want to raise their contributions over time as their salary increases, and you could prompt them to think about it at their annual salary review. Pensions offer valuable tax reliefs which are not always well understood, so you could also talk to your employees about this. Remember the value of any tax relief will depend on individual circumstances.

Nudges from you are useful to prompt your employees to take a look at their pension and make decisions such as reviewing contributions, changing investments, or nominating beneficiaries.

The power of visualisation

You could also motivate them to engage with pension savings by helping them visualise their dream future. On our financial wellbeing hub, you’ll find our Picture your best life tool where your employees can imagine how their retirement might look.

For more tips and ideas, read our automatic enrolment flipbook and our article about how to stop your employees sleepwalking into retirement.

7. Explaining salary sacrifice

Salary sacrifice is an arrangement you make with an employee that they’ll reduce their earnings in exchange for a non-cash benefit such as employer pension contributions.

One study found that 43% of organisations didn’t have salary sacrifice in place in connection with workplace pensions. One of the top reasons given was that they didn’t think it would benefit employees that much.⁶

To find out how salary sacrifice works and the pros and cons for your members and for you as an employer, read our article salary sacrifice for employers – what you need to know. You’ll also find an example of how salary sacrifice works in practice.

Salary sacrifice isn’t always suitable for everyone and may have a minimal or no benefit for employees with low earnings. It can’t be used to reduce the post-sacrifice salary to less than the National Minimum Wage. If you’re interested in bringing salary sacrifice into your workplace, speak to your workplace pension scheme adviser.

Empower your employees to make the most of their pension

Giving your employees the knowledge they need to take charge of their long-term savings and prepare for their future, could help shape their behaviour around their workplace pension. Frequent reminders could increase engagement and build a company culture that promotes financial wellbeing – which in turn could lead to your employees being more confident as they take control of their finances and future.  

You can direct your members to our Money tips hub for more support about saving towards their retirement.