In many ways, modern workforces are more diverse than ever. They can be a complex multigenerational melting pot of people with different characteristics, backgrounds and priorities. Despite this, many businesses are still operating with a one-size-fits-all pension strategy and expecting it to help their very different people meet their individual retirement ambitions. Unsurprisingly, the data is telling us that, for many people, that strategy may not be delivering the best outcomes.
In this article, our Head of Pension Consulting, Adam Burn, dives into the data to understand the hidden trends threatening the long-term financial wellbeing of your people and why now is the perfect time to implement a robust governance structure that can help you identify them.
Key takeaways
This article is designed to help you:
- Learn the value of pension plan governance
- Understand the risks of having no pension plan oversight
- Discover the 4 negative trends that may be silently affecting your peoples’ retirement outcomes
What is pension plan governance?
Put simply, pension plan governance is a process for monitoring and reviewing your workplace pension plan to ensure it is being run properly to meet your statutory obligations whilst helping deliver good outcomes for your employees.
With periodical reviews and access to key data metrics, governance can give you a valuable insight into what’s working and what isn’t. This can then allow you to take action to try to reverse any negative trends and mitigate any long-term risks that could potentially harm the growth of your organisation.
Millions may have to settle for a lower standard of living in retirement
An astounding 74% of Brits are likely to face a retirement fund shortfall1, meaning that their pension savings will not be enough to support their current standard of living once they retire. This could be because, without the necessary pension governance strategy, employers are unable to identify negative data trends within their workforce, including:
- A widespread lack of engagement among specific groups
- People making poor, uninformed decisions that could impact their retirement outcomes
- Certain groups disproportionately opting out of their pension altogether
Negative trends like these could exist in almost every workforce; the difference is some employers have a process in place to identify these trends and consider how to address them, whilst some employers don’t.
The challenge in numbers
Certain employees may be disengaged with their workplace pension plan for a variety of reasons; the plan may not be communicated effectively, people may not have the necessary education on why their pension is important and how to make the right decisions, or the fund structure may not be suitable. Whatever the reason, a lack of pension uptake and engagement can ultimately lead to:
- Worse retirement outcomes for your people
- An ageing, disenchanted workforce that can’t afford to retire
- A lack of value for your pension investment
With that in mind, let’s take a look at some of the negative data trends that our clients are uncovering with the help of good pension governance:
Trend 1: Women are retiring with less saved than men - The gender pension gap is a well-documented reality. Statistically, for every £100 a man has in his pension savings, a woman will only have £652, largely down to the impact of the career breaks and part-time work that many women take when starting and raising a family.
Trend 2: Younger employees do not see their pension as a priority - 21% of Gen Z workers are currently not saving anything towards their pension3. Without the right education, these employees may find it difficult to understand the importance of putting money away now now for future benefit, especially as this means a reduction in their take-home pay.
Trend 3: Muslim employees are much more likely to opt out of their pension - Interest-bearing investments are prohibited in Islam, as is investing in companies that operate in non-Shariah-compliant industries, like alcohol or gambling. As an example, employees of Pakistani or Bangladeshi origin are almost twice as likely as other employees to opt out of their workplace pension4.
Trend 4: Lower earners can be less engaged with their pension - In many workforces, there seems to be a link between lower salary and a lower level of pension investment. For example, 55% of top-half earners contribute more than 8% of their salary to their pension, compared with just 30% of lower-half earners5.
These are nationally relevant statistics and apply to businesses up and down the UK, just like yours. Good pension governance is one of the most effective ways to ensure these negative trends aren’t flying under your radar and threatening your peoples’ financial security in retirement.
Want to learn more about how you can level up your pension strategy with good governance?
Upcoming webinar: how good governance can drive better outcomes for pension members
15th May at 10am BST
With more and more people saving into a Defined Contribution (DC) pension, employers need to ensure they have the right governance framework in place to ensure their pension delivers good long-term value to help their people achieve their desired retirement outcomes.
Join our upcoming webinar, where our specialists share:
- the commercial value of good pension governance
- the key areas that should be on your governance radar
- positive and negative data trends you need to look out for
- the features of a good pension governance strategy and structure