Pensions, 2012 and mentoring. By Charles Cotton, CIPD Public Policy Adviser - Reward

We all know that the first half of this decade will see all firms with more than one employee enrolling them into a workplace pension scheme. So, on the one hand, by 2020 workplace pension schemes will never have been so widespread.

Yet, on the other hand, workplace pensions have never been so weak. Because of various cost pressures, firms have had to shift from defined benefit schemes (DB). However, under DB, the balance of power was with the company. If a worker left the firm they could suffer financially when they came to retire. With defined contribution, when an employee up sticks they are far more able to take their pension pot with them.

But at a time when pensions have so little retention power the demand for talent in our knowledge, creative and innovation-based economy has never been greater. Properly managed, employees can be a key source of competitive advantage. So how can pensions help employers attract and retain this talent, especially as the economy at home and overseas improves?

Well, despite what I’ve said above, for some employers, because of the nature of their business, not all of their staff will be a source of disproportionate value. So, for these companies, pension contributions will be a cost of doing business, something that has to be managed, and it makes sense for them to do the minimum.
However, for those employers where some, or all, of their employees are their most important asset then a new approach will have to emerge.

One approach is to offer a high employer contribution rate, possibly through a matching scheme, that is above the market norm. That way, employees will feel reluctant to leave or are encouraged to join. Yet, while the current market norm is set quite low (around 6%), it’s easy for employers to copy the contribution rates of their rivals.

Another approach is to become more strategic. Ask yourself, what are you as an organisation trying to achieve? What values, skills, attitudes and performances do you require from your staff to be successful, both now and in the future? How does the pension scheme attract, retain and engage those with the right values, attitudes, skills and performances? In addition, how does the pension plan support the way the organisation manages pay structures, levels and progression as well as bonuses? How does it support other elements of the reward package?

Looking wider, how does the pension plan support organisational goals and objectives, such as talent management, the brand, inclusion or corporate social responsibility? For instance, what happens when people go on a career break or are transferred overseas?

As part of a strategic approach you should try and blend pensions in with the firm’s total reward offering, so that it becomes an integral part of what employees’ value about working for the company. Pensions become seen as part of a workplace wealth creation and management strategy. In turn, this supports and is supported by the non-financial elements, such as performance management and development, recognition and opportunities for career advancement.

Of course, having a great benefit is no good unless people know and understand about it, so we’ll see more focus on workplace education and communication so staff are able to value the offering and able to make informed decisions. But, I believe, that while worthwhile, workplace financial education and communication are not enough.

What is needed is to engage employees with regard to savings, investments and retirement. This will require financial mentoring to help the employee clarify what their after work goals are, defining what success would look like for them, exploring how they can achieve success and exploring their level of commitment.  Under education and communication, the process is something that is often done to the employee. Under financial mentoring, the process is done with the employee and they own the process. If auto-enrolment is going to succeed in encouraging more people to save more for their retirement, mentoring will have to play a part.