To mark Pension Awareness Week this week (11th to 15th September), Howden Employee Benefits & Wellbeing has launched its latest research findings, ‘SME Workplace Pensions and Benefits Research Report.’
The report sheds light on a significant issue: a substantial number of small and medium-sized businesses (SMEs) are failing to fully maximise the benefits of employee workplace pensions, leaving potential retirement savings untapped.
Based on a comprehensive survey involving 500 SME employers and 500 SME employees*, the research found that 90% of employees said their employers haven’t encouraged them to increase their workplace pension contributions to secure enhanced retirement provisions.
Many employees are only paying the minimum into their workplace pension and believe it will be enough to provide them with a comfortable standard of living in retirement. As a result, many may potentially fall short of their retirement goals.
This would be bad news for both the employees and their employers, and highlights the urgent need for employers to take more proactive measures.
Other findings include:
- Pension scheme oversight: 24% of employers admitted to never reviewing their pension scheme’s continued value for money, with an additional 28% only conducting such reviews sporadically. The financial impact of not reviewing a workplace pension scheme can be significant.
- Default pension fund alignment: Over half (56%) of SMEs had not assessed the appropriateness of their default pension fund for all employees. Default funds are designed to cater to a broad range of individuals, but not all employees have the same financial situation, risk tolerance, or retirement timeline.
By not reviewing the appropriateness of the default pension fund, employers run the risk of exposing their employees to reduced investment outcomes, potentially impacting their retirement savings.
- Unrealised savings awareness: While 63% of employers were conscious of the potential savings for businesses and employees through salary sacrifice, a surprising 68% of employees remained unaware of the possible national insurance savings.
This knowledge gap highlights a missed opportunity for many employees who may not realise that by engaging in a salary sacrifice scheme, they could contribute more efficiently into their workplace pension, ultimately securing a more stable financial future for themselves.
Employers can play a pivotal role here in bridging this knowledge gap by informing employees about the advantages of salary sacrifice, both for their personal finances and the broader company’s financial health.
- Most Valued benefits: 50% of employees placed workplace pensions in the number one spot when it comes to the benefits they value most, with SME employers almost in complete alignment, with 48% recognising they come first for their employees.
- Underestimated recruitment advantage: Despite being regarded as the most valued employee benefit by 50% of employees and 48% of SME leaders, a significant 42% of SMEs failed to incorporate workplace pension promotion into their recruitment process.
Promoting the workplace pension as part of the recruitment process is essential. It demonstrates a company’s commitment to the long-term financial wellbeing of its employees, appealing to job seekers who prioritise financial security and future planning.
And it helps SMEs attract top talent and compete with larger corporations in the talent market, as comprehensive benefits packages are becoming increasingly important to prospective employees.
Mark Fosh, Executive Director SME, Howden Employee Benefits & Wellbeing said: “As financial stress continues to rise, many employers are taking steps to look after employees’ financial wellbeing, including providing them with better workplace pensions. However, SMEs may be missing a trick in terms of making the most out of pension opportunities for their business, employees, and potential new hires. Common mistakes include failing to encourage employees to increase their pension contributions, not educating them about salary sacrifice or promoting the scheme to attract new talent.”
“Employers who offer good quality workplace pension schemes should be boasting about them, as well as ensuring the scheme is well governed and compliant. This includes re-enrolling employees and communicating all the benefits of the scheme, as well as explaining the various salary sacrifice options.
“Salary sacrifice schemes can be an effective way for employers to help encourage pension saving and support their employees’ retirement planning by redirecting some or all their National Insurance (NI) savings into their employees’ pension pots – and it doesn’t have to be complicated.
“In our experience, SMEs want to do the very best for their employees and understand the part that workplace pensions can play, but senior executives can be time poor and often don’t have the capacity to be on top of every aspect of a fast-moving market.
“During Pension Awareness Week, we encourage SMEs to download our free report which outlines the key points from our survey and how workplace pension schemes can work as hard as possible for everyone.”
* The survey was completed by 500 SME business employers and 500 SME employees between the 16th March and 4th April 2023.
To download the report, click here: https://eb.howdengroup.co.uk/sme-workplace-pensions-and-benefits-research-report
For more information, please visit www.howdengroup.co.uk