By Ilonka Oudenampsen
Pension communication to younger members should give more information about the immediate financial positives, Source Pensions has stated.
The administration and investment fund platform for occupational pension schemes said that trying to encourage young employees to save for their pension by explaining the many thousands of pounds they will need to have built up by the time they retire will have little effect.
Source Pensions managing director Alastair Burt said: “Communication should quantify the impact that joining the scheme will have on them straight away, at the time when their disposable income is often at its lowest.”
Retirement provision is not often top of the financial agenda for younger employees’, but with many being auto-enrolled into their company’s scheme from October onwards, it is vital that the benefits of staying enrolled and making contributions are well-communicated to the member.
Burt continued: “For instance, the value of the employer’s contribution cannot be underestimated. Members need to truly understand that this is ‘free’ money that they could receive. It is, in effect, a pay rise of sorts that would not be available if they were to opt out of the scheme. The message that these employer contributions make up a significant portion of the funds that the member will need to buy their pension should be made clearer.
“There are also other means by which the contribution blow can be cushioned. For example, contributing through a salary sacrifice arrangement could lower the student loan repayment amount taken from their pay. In these instances, the cost to the member’s disposable income by making a pensions contribution is partly covered by the drop in their loan repayment level.”
If auto-enrolment is to succeed and the perception of the industry is to improve, Burt added, then younger members must be on board with the benefits of being part of their scheme and making provision for their future, in terms they can relate to today.
“Our industry has the opportunity and arguably the responsibility to lead the successful implementation of auto-enrolment and to ensure that more people are able to look forward to an income that matches their personal aspirations for retirement.”