While recent data suggests that the opt-out rate for pension auto-enrolment is much lower than expected, new research from the financial services firm Hargreaves Lansdown suggests that employee support may be more precarious than previously supposed.
Thousands of SMEs, including many Umbrella Companies, are approaching their staging dates for implementing the scheme over the next few months; however, the new study, which surveyed 100 UK employers, found that poor financial education amongst employees was leading many of them to view the scheme as a “thankless expense” that may result in them abandoning the savings process at the “first bump in the road”. A significant proportion of workers are prioritising more immediate financial needs, as poor understanding of the new scheme leads them to undervalue it.
Hargreaves Lansdown’s head of corporate research, Laith Khalaf, said that employers need to do more to foster a spirit of saving amongst employees: “Employers can kill two birds with one stone, getting employees to recognise the money the company pays in and to consider whether their own personal contributions are adequate. Offering workplace ISAs is one way to get staff thinking about saving in a way that appeals to their short- and medium-term goals, creating a stepping stone to considering longer-term retirement savings.”
The difficulties extend further: 46% of employees have little to no appreciation of the £10.7 billion already being paid by employers on their behalf into defined contribution pensions. According to Mr Khalaf, auto-enrolment will simply add to the bill.
He continued: “Getting recognition for this should be a top priority to maximise the benefit the company gets from that expenditure.”