43% working-age people (equivalent to 14.6 million) are under-saving for retirement, according to a recent report by the Department for Work and Pensions. In addition, research from WEALTH at work found that in the last year, almost a quarter of UK employees (23%) have had to borrow money from family and friends because of money worries, and almost a fifth have taken on debt (18%).

The impact of rising costs has also meant that almost half (45%) of workers believe they will never be able to afford to retire which is up from two fifths (39%) twelve months ago, and a third (33%) in 2023.

As well as these challenges, there also seems to be a general lack of pension understanding and engagement. 21% of employees are unaware that their pension is invested and 39% are unaware of what their pension is invested in.

However, interestingly, researchalso found that 41% of employees would increase their contributions if they knew their pension was invested in funds that aligned with their values and beliefs.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“These findings should prompt employers to consider how employees are being supported to tackle money issues head on, build financial resilience and achieve more positive outcomes for the future.

He adds; “Whilst retirement may seem a lifetime away for some, it’s vital that people engage with their pensions as early as possible. Many don’t realise the significant difference a small increase to their pension savings can make. For example, someone in their 20s, saving just 1% more each year into a workplace pension can boost future savings by 25% if their employers were to match this. Making small increases in pension contributions may not feel affordable but making small changes such as setting a household budget, shopping around and not auto-renewing on things like car insurance, as well as utilising workplace benefits i.e. discount schemes, really can make a huge difference when trying to find that bit of extra cash.”

He adds; “It’s also really interesting that our research indicated that many people would increase their pension contributions if they knew it was invested in funds that aligned with their values and beliefs. In recent years there has been a significant expansion of Environmental, Social, and Governance (ESG) considerations, with people wanting to align their pension investments with their values and beliefs. By simply knowing that pensions can be used to make a difference can be a powerful way to switch people on to better engage with their long-term savings.”

He adds; “For people to better prepare for their financial future, they need support to understand their general finances including ways to save money, budget, manage debt, as well as how to make the most of their pension savings for later life. It’s exceptionally important that schemes, Trustees and employers collectively work together to ensure that pension scheme members and employees are making the right decisions when it comes to their pensions. After all, people who better understand their pensions are likely to be more engaged and save more, make better decisions at-retirement and be financially better off, which ultimately is what it’s all about.”

To help, see our tips on how to empower employees to engage with their pensions:

1. Empower your people with engaging education: Whilst some information may be provided via a website or leaflet, actually attending an interactive financial education workshop about pension options and retirement income options is far more engaging. This is why increasing numbers of employers and Trustees are using either virtual or face-to-face seminars. This can also be supported by digital tools and webcasts that can be used or viewed anywhere, on any device.

2. Offer tailored support: To make it meaningful, financial education should be tailored to each demographic in the workplace by career stage. Earlier on in an employee’s career it should cover how pension schemes work, employer and employee contribution levels, tax relief, what funds they can select from, as well as how they can change the funds their pension is invested in. Later on, around mid-career, employees will also need to understand if their pensions and other retirement savings are on target, as well as how income may be generated in retirement and ensuring investments are being managed in line with this e.g. their investment glide path. Then once at retirement, people will need to understand how to generate an income from their pensions and other savings, as well as how to seek further help including investment advice and consolidation services to help people manage their pension savings effectively.

3. Run financial guidance sessions: One-to-one financial guidance or coaching sessions could be particularly useful for those who need a deeper level of knowledge around their pension options, which is especially relevant for those at retirement. These could be delivered via a video call or via the telephone and can really help people understand what their next steps should be and if they would like further support.

4. Provide access to investment advice: This is particularly useful for those at the point of retirement who want to understand their personal financial situation and may have more complex questions about their pensions and retirement income.

5. Bring in a provider: Many employers and Trustees are now working together with financial wellbeing, retirement and workplace savings specialists to help individuals engage with their pensions and savings throughout their career. It is essential to carry out due diligence on providers. This includes ensuring that they are workplace specialists and checks on advice firms should cover areas such as qualifications of advisers, the regulatory record of the firm, compliance process and pricing structure.

Jonathan Watts-Lay, Director, WEALTH at work comments; “Taking an active approach and supporting employees with the help of reputable firms will make the whole process far more robust. Ultimately, empowering your people by providing them with access to appropriate support at the right time can result in better outcomes for all.”