Making saving cool

Marek Handzel looks at why employers should not give up hope of being able to entice young people into a scheme

Earlier this year, Hymans Robertson carried out a survey looking at what typical HR professionals felt would be the main trends in employee benefits for 2008. The research carried out by the consultancy and actuarial firm also quizzed employees on how they perceived the benefits packages that their employers had put together for them.

When asked which benefits they valued the most, workers mentioned holidays (93 per cent) and pensions (73 per cent). However, those in the 16-24 age group valued company cars, season ticket loans and even dental insurance above pensions.

The figures were not a particular revelation to employers, many of whom have almost given up on trying to promote retirement planning to young employees. This collective hand washing exercise has been encouraged by large sections of the financial services industry who never tire of reminding employers that the twenty-something members of their workforce are too busy paying off student debt, saving for a home and partying to have time to consider joining a pension scheme.

Punter Southall, the financial management firm, recently released a mini-guide for employers with large amounts of 'penniless and pension-less graduate trainees' which outlined what the financial planning priorities should be for young workers. The 'tips' given by senior consultant Sarah Darvill all seem sensible and clear when viewed in isolation, but as part of a short to long-term plan for young workers, appear to present a mixed message to employers.

On the one hand, Darvill states that graduates could be turning down thousands of pounds by not joining a defined contribution scheme early enough. "In the current defined contribution pension world the average employer contribution is six per cent," she says.

"It is vital that graduates recognise that any employer pension contribution is a key part of their total remuneration package and that essentially, a six per cent pension contribution is a six per cent pay rise. How many employees would turn this down in today's market if it was conveyed in this simple manner?"

However, on the other hand, she also argues that "the main priority for the majority of graduates in the short term will be reducing debt. There is little point in starting to save until expensive debts have gone".

Darvill goes on to suggest saving in a corporate ISA as an innovative way to encourage individuals to save: "Both employer and employee contribute tax free to build up a pot of money that the employee could use as they wish, perhaps to assist them in getting a foot on the property ladder."

But putting a pension onto the backburner hasn't always been the way things have been done. Figures for pension take-up at the early stages of a person's working life have been steadily falling for a number of years now – so where did it all go wrong? After all, behind the negative image surrounding the product lies the best retirement saving product known to man.

As far as Mark Bingham, director at the communications specialist Secondsight is concerned, part of the reason that some people are so dismissive of efforts to cajole young workers into a pension scheme is because they themselves have failed to do just that.

"They're almost looking for excuses themselves," says Bingham. "I heard someone at a conference once say 'don't get young people involved in a scheme as they won't be interested – wait until they are older and more sensible and then they will get into them'. I remember thinking to myself that what the speaker was saying was outrageous.

"Even if people have got student debts, you can still sit down with them and put forward the case for pension saving, but to just dismiss them out of hand is immoral," he continues.

"Anyway, most people have got debt, it doesn't matter what it is. The UK has lost sight of the fact it is better to spend slightly less than you earn and that is true of people in their forties of fifties, as well as those in their twenties. Yes, older people take more interest in pensions, but that's because they're scared – it feels closer.

"It's not that young people are not interested in pensions, it's just that the people who talk about pensions are not very interesting."

Bingham also points out that the importance of spreading costs and contributions – not to mention compound interest – needs to be stressed to employees: "Who takes out a ten year mortgage? Most people take a 25 year one to spread the cost."

Face-to-face
If an employer accepts the premise that young people should still be encouraged to join a scheme from day one, then they need to spread the word, so to speak. The problem is, however, that proper communication is rapidly becoming a lost art.

The core message of pension saving has drowned in a sea of DVDs, glossy brochures, flashy intranet memos and low impact promotional presentations.
Dave Lowe, Zurich's pensions management director, says that companies spend huge amounts of money on communication and yet no-one in their workforce really cares about the scheme. "That can't be right," he says.

"The key factor is to know and understand your workforce. For example, employees are always on the internet – but will they use it to access pension savings information? Of course they won't. They'll be booking holidays or buying books.

"We have one IT company with a high proportion of techie individuals among their staff, but we were told by the firm that using the intranet would be useless in passing out information on the pension – they wanted information in their pigeon holes."

In today's fluid and internationally-flavoured labour market, other barriers have to be overcome. Lowe encountered one client were the take-up for the scheme was very poor, and there was, as far as Zurich could see, no clear reason as to why many employees were turning down a generous pension. It turned out – after Zurich had sat down with the unions and the HR department, that most of their workforce was in fact Polish and had a very limited understanding of English. After switching some basic information into Polish, explaining matters such as what would happen to an employee's pension savings once they returned to their home country, for example, the take-up rate doubled.

Secondsight's Bingham says that providers have become obsessed with analysis of financial behaviour and lost sight of the basics of communication.

"You have a lot of providers and employers who spend a lot of money analysing something when most people know, deep down, what is going on. People aren't interested.” he says.

“There is a gorilla in the room and nobody can see it. Somebody is just going to have to sit down and talk to them."

One company Secondsight was brought in to work for wanted to know why 30 per cent of their people had still not joined their pension scheme, despite the fact that it was non-contributory. The major error made by the company was that the scheme was very badly presented: "They had a pack with the information that the pension was absolutely free right at the end of it. But the word on the pack was 'Pension' in bright red, and pension, for many, is spelt 'b-o-r-i-n-g'.”

Bingham's philosophy is very simple. Many people associate a pension with pain, but they sit down with individuals (they recently met with 600 workers over seven weeks at one company), work out what they want in retirement and then help them realise that they will have more pain later if they don't act now.

"We want to make sure that you're not the poor bugger who's moaning at the Government about getting an extra £100 for fuel – because you're the person who can afford it." A message that all our young workers would do well to heed.

- Pensions Age September 2008