An opportunity to engage, whatever members earn
There’s no getting away from the fact that it’s those earning more (and those already with sizeable pensions savings) that benefit most from the Government’s recent announcements on pension saving limits.
If the ‘higher earners’ (or those with significant pension savings already) immediately make the most of the increased tax efficiency, we should take note. This surely reinforces the fact that pensions are a savvy way to invest for the future.
As my colleague Jayesh Patel describes in his article: How companies can help DC pension savers with the rising cost of living there are some constants when it comes to the advantages of pension savings: matching contributions for most, tax relief for all, and investment growth over the longer term. We have been looking at the potential impact on 30-year-old Mo, earning £30,000. In an upcoming article we’ll shed some more light on Mo’s position, but in simple terms, Mo’s 3% contribution sees £900 going into his pension pot each year, with a £612 reduction in take-home pay (thanks to tax relief and NI savings) – and that’s before any potential employer match. We should be taking this opportunity to inform and educate, regardless of financial status.
And it’s not all about tax and contributions. We have a lot to tell all pension scheme members, with two other significant changes on the horizon to help bridge the huge UK pensions savings gap:
At WTW, we use a simple framework in our discussions, which we’ll show through the lens of recent pensions tax changes:
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Schemes have rich insights at their fingertips: both demographics and behaviours, which can be used to design experiences and shape communication strategies to drive better member outcomes. And you can add to this insight by surveying your members to find out more about what they think, feel and need.
Members with an adjusted income under £260,000 can now save up to £60,000 tax efficiently every year (if it suits their circumstances). With earnings information as well as the cost-of-living considerations very much front of mind, generic messages about this across scheme populations are not likely to be appropriate. But overlay earnings/other figures with member behaviour (for example, in relation to additional contributions), and you can start to build a more focused way of delivering highly relevant information to segments of members.
Considering another ‘segment’, the increase to the Money Purchase Annual Allowance is a big change for members who have taken flexible retirement. As an industry, we have a responsibility to ensure that members are equipped with the right information to make informed decisions.
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The key here is identifying gaps in the tools and resources that you offer today, what scheme members need and where there are gaps to best engage.
Are members still struggling to understand if (and how much) they should contribute? Do members need support understanding how tax relief works (and what exactly it could mean for them)?
All members can benefit from support to understand the net tax cost of their pension contributions. This support will likely need to increase for those members who have substantial contributions going into their savings (these members will need to understand the amount they can pay tax efficiently and the rate of tax relief available for different brackets of income). The support package may look different for different schemes depending on its profile.
Some members may need to give up cash and opt back into pensions savings. And they may be nervous of doing so, especially if they have existing Lifetime Allowance protections in place and will need to understand the potential risks and benefits of the options available to them.
Similarly, the framing of communications and decision-making tools for annual bonus sacrifice may need to look different with more members now being able to save more in a tax-efficient way. We regularly hear from members the extent to which they value a flexible approach to contributions – updating their regular contribution rate regularly and making one-off additional contributions. We need to make the most of this communication touchpoint.
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At WTW, we are passionate about increasing members’ pensions confidence and capability.
We work with schemes to ensure the foundations are right. In the context of contribution decisions, a key question is whether members can see the value of tax-efficiencies. More importantly, can they see the personal impact? Can members easily work out their maximum allowances and the rate of tax relief available to them? Is the pathway to take any action as clear as it can be?
We’ve seen the successful use of ‘how to’ guides which are quick to configure to meet scheme needs. These online or offline guides can help members calculate their own limits and understand how to maximise their tax-efficient savings. Members are taken through step-by-step, with visual representation explaining how to get the answers they need and where to find relevant information – before covering the important ‘what next’ that drives action.
Schemes and employers can then maximise the opportunities they have and meet their responsibilities to educate and motivate members through an appropriate mix of communication messages and channels.
This could be targeted emails to specific segments of members, short films delivered by experts, online education right through to group and individual pension guidance by qualified specialists.
We would be delighted to share our approach, templates and answer any questions you may have.
To request a meeting, please contact your WTW consultant or one of the below.
