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Exploring the importance of pension awareness and engagement

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Chieu Cao, CEO, Mintago explores the importance of pension awareness and engagement.

In the UK, there is an urgent need to address pension awareness and engagement, or the lack thereof. While nothing new, many people are problematically passive when it comes to saving for retirement.

This is not their fault. An individual often enrols in an auto-enrolment workplace pension plan, but as they move workplaces throughout their professional careers, they lose track of their several pension pots.

The missing pensions

The scope of the issue has just been revealed via research. According to studies conducted by Hargreaves Lansdown, 200,000 people have been in touch with the Department of Work and Pensions (DWP) in the last four years to ask for help locating missing pensions. In fact, there are now over £26 billion worth of lost pensions out there.

Clearly, people just don’t know enough about their pensions, leaving savers in the dark about how much money they have set aside; for many, this is only recognized as they enter their 40s and 50s and start to focus more actively on retirement.

Unfortunately, by that point, it is too late. If a saver waits until retirement is looming to then consider how best to prepare financially, it will likely mean they have missed out on better managing their pension pots to ensure maximum returns.

Clearly, more needs to be done to encourage employees to engage with their pensions to a greater extent. In fact, Mintago’s research found that 46% of UK adults would like their employers to do more to improve employee engagement with their pension schemes.

What’s causing this lack of engagement?

First, we must consider why there is still a problem with low pension engagement before we can address it.

The employment landscape in the UK has changed considerably over the last 20 years. As a result, people are changing occupations far more frequently than in the past; according to recent studies, the average person now changes jobs 12 times in their career.

Since auto-enrolment was implemented in 2012, employees now accumulate a new pension pot for each permanent job role. The issue with auto-enrolment, despite helping people save for retirement superficially, is that by automating the process, many employees choose not to think any further about their pension savings. What’s more, it gives a false sense of security that whatever they are saving through auto-enrolment is sufficient for retirement.

As a result, many employees accumulate multiple pension pots throughout their careers without having a clear understanding of what they are saving for or where their funds are being kept. So, why is it important for employees to engage with their pensions?

The importance of pension engagement

Engaging with one’s pension at a young age makes amassing enough money for retirement much simpler. Employees can profit from compound interest by starting to save early, which means that every additional pound saved in their 20s might be worth four times that much by the time they retire.

Delaying long-term savings comes with a price: a 31-year-old would have to contribute 90% more than a 21-year-old to amass the same amount of pension money. The earlier employees’ start to save, the better, which is why it’s so important that employers can encourage high levels of engagement with their pension scheme – but how?

Encouraging pension engagement through financial education

Early engagement can also reveal any knowledge gaps that employees’ might have about their pensions and long-term financial plans. Too often, people neglect their pensions because they don’t have an adequate understanding of them. To help staff engage with their pensions to a greater extent, employers must be able to fill these knowledge gaps.

One way of doing this is to encourage employees to improve their financial literacy. Unfortunately, not enough attention is paid to financial education in schools, so employees would welcome extra support from their employers to increase their knowledge about their pension schemes.

Once employees are armed with the knowledge they need to manage their pensions effectively, employers will have helped their staff to make better informed financial decisions due to an understanding of the money they have saved. In the long run, this should help them maintain their financial wellbeing and plans for a happy retirement.

Encouraging pension engagement through online wellbeing platforms

It can be a daunting task to improve employee pension engagement. Fortunately, there are tools and third parties – like Mintago – on hand to help.

Indeed, there are online platforms that offer an impartial service to track down a client’s lost pensions and display all the information in a clear, concise format. When an employee has access to such information, they will be much better placed to make decisions about their money – be it pension pot consolidation or creating a new investment strategy. Too often it’s the case that people consolidate their pots with a pension provider without getting advice on it, for example.

Employers can no longer just enrol their personnel in auto-enrolment programmes without providing any additional information. Instead, a dashboard that is easily available and enables employees to interact with their pension plan will undoubtedly boost both engagement and financial security. As a result, employees feel more confident when confronting short-term difficulties like the cost-of-living crisis because they will have  better control of their long-term financial strategies.

Likewise, these platforms can connect employees with independent financial advisers who can provide them with the support they need to navigate any financial difficulties that they might be experiencing with their pensions, or indeed their wider financial lives. Strikingly, Mintago’s research found that 33% of UK adults needed help managing their finances, but didn’t know where to find it, so making financial advisers readily and freely available would certainly help in this sense.

Increasing engagement with the salary sacrifice pension scheme

Finally, Pension Awareness Week is the perfect opportunity to promote HMRC’s salary sacrifice pension scheme, which can save employees (and employers) valuable money on national insurance (NI) contributions and income tax.

Using the salary sacrifice pension scheme – which Mintago helps businesses access – essentially reduces the employer’s NI bill and will also ensure employees enjoy higher take-home pay, as they will also be paying lower NI contributions. This is likely to improve pension engagement, as employees will see the direct benefits of their workplace pension scheme at the end of each month.

Final thoughts

To conclude, pension pots are arguably the largest asset that many people will own in their lives and can make all the difference to an individual’s long-term financial security. Therefore, especially during Pension Awareness Week, it is crucial that Britons are able to locate, manage and understand all the pension funds to which they are entitled. This requires employers to improve pension engagement within their workforce, which they can do by improving their staff’s financial education and providing them with access to financial wellbeing platforms.

Chieu Cao is CEO of Mintago

Mintago is the UK’s most complete, inclusive and unbiased financial wellbeing solution, helping businesses adapt and support their employees in these changing economic conditions. Mintago is FCA regulated and helps employees find lost pension pots with ease, providing financial planning tools, access to free financial advisers and over 1,000 pieces of educational content. Mintago also helps businesses and employees save money via the HMRC salary sacrifice pension scheme. It provides a hassle-free implementation programme, creating direct savings on National Insurance.