Where workplace pensions are going wrong

If we are being honest with ourselves – workplace pensions aren’t the most inspiring of things, even by the financial services industry’s standards. But that is not to say they aren’t important. Engaging your teams with their pensions now could well be the difference between them living comfortably in older age, or not. And more immediately it could be the difference between your business attracting and retaining the best talent, or not.By Pete Hykin, co-founder, Penfold

The biggest change to workplace pensions in history was instigated not by workplaces or their employees, but by the UK Government – auto enrolment. Introduced back in 2012, the policy of automatically enrolling qualifying employees into a pension scheme that their employer also contributes to has had a transformational impact on pension saving in the UK. Nearly eight out of ten UK employees now have a workplace pension, but as we approach the decade anniversary of the policy, it is becoming blatantly clear that more needs to be done.

The automatic nature of these pensions has been both a blessing and a curse. Yes, it has started millions of people off on their saving journey but it has done little to encourage them along that road – as a result the average pension pot in the UK stands at £42,651. This is roughly a fifth (18%) of the recommended total for a comfy retirement.

The Government have done their bit here, now it is up to employers like you and pension providers like us to forge a better way forward – building on the principle of the workplace pension but bolstering it with powerful tools such as easy-to-understand dashboards, transparent fees and, critically, financial education and support.

Lack of employee support 

Despite the introduction of auto-enrolment, employees continue to disengage with traditional schemes. This is arguably the biggest failure of providers, as they fail to offer support to HR teams on how to best implement workplace pensions. 

HR teams have been forced to become overnight pensions experts. This shifts their focus away from the truly impactful HR tasks. Through no fault of their own, HR departments often fail to provide the correct support, as they are not qualified to deal with issues providers should be managing. 

This leaves many employees unaware of the different options and tools available to them, such as retirement planners and contribution calculators, which can serve to boost engagement and saving. 

Increased engagement and understanding will not only make savers savvier but also enable them to see where their money is being invested, ensuring it aligns with their values and future. Indeed, pension savers now have options to invest in ethical and sustainable funds, which is particularly important for younger savers. Similarly, at Penfold, we even offer a shariah-compliant fund, recognising the importance of making pension saving accessible to all.

High fees and low returns 

The engagement obstacle, on which providers and employers need to work together, is just one side of the coin. The second barrier to better workplace pensions is a more fundamental one – the poor performance of many schemes. 

Often employees are placed into default funds with overly conservative investment strategies. This is particularly punishing for younger workers who, with longer left to invest, should most likely be looking at more ambitious funds. Adding to this, the higher fees and charges often levied on traditional workplace pensions, it is no wonder so many people simply do not recognise pensions as a ‘benefit’ of their current role.

Pensions providers should be doing so much more to help savers make the right decisions for their unique pensions journey – this includes collaborating with workplaces to tailor plans and educate teams on the full array of options open to them. 

If one thing is clear, it is that providers must work harder to provide the pensions solutions employers and employees deserve. At Penfold, we’re on a mission to bring workplace pensions into the 21s century and deliver financial wellbeing for all, so that we build generations prepared for life after work.