When the automatic increases to workplace pension contributions happen in April 2019, the last thing employers need is time wasted on explaining things, which should have been crystal clear six months previously.
To recap, in April 2019 the minimum employer contribution to workplace pension scheme will automatically rise by 1%. At the same time, minimum employee contributions will increase by as much as 3%, depending on the certification basis of the workplace scheme. This will be a busy time for payroll administration, as adjustments to personal tax allowances and national minimum wage rates will also take place. And if employers make annual pay awards at the same time, there’s that to factor in. It’s also when the UK is set to exit the European Union, so there will be plenty to think about for businesses of all shapes and sizes.
So how can employers prepare employees for these changes? Are there advantages in communicating changes to pension contributions sooner, rather than later? What are the key messages that resonate with employees? How can employees feel energised about the rise in their contributions and the value of their workplace pension schemes?
We’ve narrowed the answers down to three useful pointers which can help make a success of what could well be a difficult communications exercise for those who haven’t prepared.
1. Communicate, then repeat the facts. Once is never enough!
Rugby, football, ‘Strictly Come Dancing’ or Taylor Swift might grab an employee’s attention, but workplace pension schemes are unlikely to generate as much interest. The simple fact is that many employees will switch off as soon as the word ‘pension’ is mentioned.
To make a success of communicating the new contribution increases to employees, employers will need to remind employees about the facts several times. Employers might well need to tell employees what they are going to tell them, then actually tell them, and then tell them again for good measure. And they might consider using different media to let them know about it.
Keeping workplace pension scheme members regularly updated with clear communications is good housekeeping. The clearer things are, the more time employers have for focusing on business, not pensions. But once is never enough!
2. Appeal to an employee’s self interest by reinforcing the workplace pension’s value
Many employees lack basic knowledge about workplace pensions. There is little point in issuing pages of complex technical information for them to puzzle over. The solution is to cut to the chase and get to the point about their workplace pension money.
These four simple points can appeal to each employee’s self interest:
- Employers put money in on their behalf. If they are not in the workplace pension scheme, they won’t get the extra money.
- It’s the employee’s money, not the employer’s. What goes in is theirs, what comes out is theirs. Currently, from age 55 they can take a quarter of it as a tax-free lump sum to spend as they like.
- Their savings get a 25% top-up from tax relief. If they are basic rate taxpayers, for every £80 they save in the workplace pension, £20 is added from tax relief. That’s an instant increase of 25%.
- They will need more than the basic state pension to live on. The current basic state retirement pension is £125.97 a week.
Understanding the monetary value of a workplace pension scheme is crucial to help employees appreciate the value of their overall benefits packages.
3. Clear communications can make this work, and we’ll help employers to get it right