Many defined contribution (DC) members are not saving enough for retirement and savers who are looking at their spending might decide to pause or even stop saving into their pension. One in ten DC savers have already reduced or stopped their contributions because of the cost of living crisis, while 69% of low earners who are currently not saving into a pension will not be able to do so. DC savings for many savers were already inadequate and the cost of living crisis could make the situation worse.2
So, what can employers and trustees do to help?
| Which of the following would most help you manage your day-to-day finances? Select the top 4 | |
|---|---|
| Access to a financial coach or advisor to help with spending, borrowing, saving and investing decisions | 33% |
| Access to services to manage debt (debt repayment/consolidation/rate adjustments, etc.) | 32% |
| Access to apps/online tools to help me track and manage my spending | 29% |
| Access to short-term loans (e.g., auto, payday, etc.) via preferred financial institutions | 27% |
| Access to group discussions with co-workers to discuss day to day finances, spending and debt | 26% |
| Enhanced financial education (seminars/webinars) | 24% |
Source: 2022 Global Benefits Attitudes Survey, United Kingdom
There are two important messages to convey when schemes are educating their DC savers. The first is to encourage them to save. The second is to steer them away from danger, in the form of pension scams.
| Which of the following would most help you manage your day-to-day finances? Select the top 4 | |
|---|---|
| Discounts/subsidies (commuting, food, other purchases) | 44% |
| Access to savings and investment options where I can save directly from my pay | 42% |
| Flexibility to use retirement contributions for other needs (e.g., surprise expenses, health care costs, housing, pay off debt) | 38% |
Source: 2022 Global Benefits Attitudes Survey, United Kingdom
To better support people in these challenging times, some employers are putting their money where their mouth is. Employers in a position to do so could offer fixed or one-off cost of living payments. Others are considering increasing or bringing forward any planned annual pay rises.
Some companies are working with salary advance providers to alleviate short-term financial stress by giving people access to their wages before payday. This could help stretched employees to keep up their pension payments. When people are looking to ease financial pressure, they might be tempted to stop saving into their pension, which can affect them significantly over the long term.
As the cost of living crisis continues, people may look for flexibility in how much they save into their DC pensions. One way to do this is to make it easy for employees to change their contributions regularly – perhaps employers could give them a way to do this monthly, rather than annually.
Employees could also be allowed to re-direct core and/or matching pension contributions into an alternative savings vehicle, like an ISA, to help them to build up short-term, accessible savings. This approach – which we at WTW call Flexible Savings – could help employees build up the emergency buffer for the short to medium term that so many urgently need.
Employers should also make the most of their existing benefits. If you already offer a supermarket discount scheme, for example, now is the moment to make sure everyone in the company knows about it. Companies should also make sure employees are well acquainted with any salary or bonus sacrifice schemes which are available and understand the possible savings they could make.
Right now, education is more important than ever. When every penny matters, DC members need to be reminded of why saving matters, how advantageous it is to save into pensions because of tax relief, and the National Insurance savings people can make under salary sacrifice. Schemes can also talk to savers about how their money is invested.
Helping people to better manage their money can go a long way towards supporting good financial habits. As can be seen from the survey above, debt and spending rank very high in the areas where people would value help. Therefore, we’d encourage employers and trustees not just to think of DC savings, but to consider the wider topic of financial wellbeing.
Sometimes when it comes to money, people just want to speak to an expert. Access to a financial coach or adviser was at the top of employees’ wish-lists in WTW’s 2022 Global Benefits Attitudes Survey. There are more and more providers of coaching and financial advice, and employers should definitely consider this avenue. A session with an expert will bring home the importance of saving in a way that really stays in people’s minds as they make financial decisions in future.
Employers put so much energy into encouraging people to save into pensions, not to mention the cost of pension contributions. It’s equally important to make sure savers are in a strong position to safeguard their money. Squeezed households could be more vulnerable to pension scammers, warned the Pensions Regulator, Financial Conduct Authority and Money and Pensions Service in November 2022.
Companies usually have information about pension scams available, but it’s important to make sure this is front and centre of their communications.
It is all too easy to feel helpless in a cost of living crisis, and it’s entirely understandable for employers to be unsure of how and when to intervene. We hope that in this article, we have helped you to see that as an employer or pension scheme trustee, you have a great deal of power to help. Your trusted position in people’s lives puts you in the ideal place to help them through this challenging time. And whatever your budget, there are ways you can support them.
1. The DC Future Book, the Pensions Policy Institute and Columbia Threadneedle Investments, September 2022.
2. Scottish Widows report June 2022 and L&G auto-enrolment report, September 2022
