An aging population, potentially delayed retirement and strained social security funds - news about the golden years seems rather lacklustre. So what can organisations do to help their employees prepare for life after work?

Employees need to actively participate in their own retirement plans

There is some distance to go before employers can say their staff will be sufficiently prepared for retirement, according to a number of studies and surveys.

Some 45 percent of workers in the US believe they will not have enough to retire comfortably on, according to a recent report out from consultancy Hudson. In Britain, a third of employees surveyed by the charity Age Concern said they hadn't signed on to the company pension scheme when they started the job and had not been asked again.

In France, half of those surveyed in 2004 by financial-services provider Principal Financial Group say they have not yet planned for their retirement. The same poll in Germany found that 44 percent of respondents expect their standard of living to decline after retirement – an increase from 33 percent in the previous year's survey.

Employers also appear to be aware of the insufficient participation in pension savings programmes. Only 18 percent think their employees will have sufficient retirement provisions, according to a survey of nearly 200 large companies conducted by global HR consulting firm Hewitt Associates.

"Many employees are just not actively using the retirement programmes that are available to them – either it's not a burning platform, or they don't feel up to the task," said Lori Lucas, director of participant research at Hewitt. "Whatever the reason, companies want to see a change here."

One route to increase employee savings and participation may be enhanced communication. So recommends a report released in December 2004 by the London-based Chartered Institute of Personnel and Development (CIPD).

"Too often, communication is seen as an optional extra rather than an integral part of the administration of a pension scheme, whereas in fact, communication should be a strategic aspect of any pension initiative," says the report, "Pension Communications: Realising the Value." 

The 53-page report features several case studies of companies in the United Kingdom that initiated and ran successful education and communication campaigns around pension provisions. For example, global retailer GAP developed stylish posters – in keeping with their hip image – to encourage employee participation.

When aerospace firm BAE Systems faced increasing deficits with its pension funds, it developed an extensive communication programme to keep its employees well-informed and included in the decision-making as changes were made to the scheme. And when Honeywell decided to end its defined benefit plan for new employees, it also implemented a number of initiatives to explain the change to existing employees and stimulate interest in the defined contribution plan for new hires. 

"The key point is that to achieve full value for your company of operating a pension scheme, you need to communicate with staff about what you're doing," the report concludes. "There is no single 'right' way to do this – employees learn differently and employers should include as many ways of getting their message across as is practical."

The point is to make the process simplified and user-friendly, said Tim Roberts, managing director of Talking People, a benefit's compensation communications consultancy that is a Mellon Financial Company based in London.

Employees don't need to be bombarded with bulky binders on day one of a new job; they need clear, simple explanations over time that will allow them to make choices.

Roberts highlighted one campaign his firm worked on for a large pharmaceutical firm. Employees only had to only tick a few boxes to increase their contributions by a few percentage points.

"It's a pint of beer of week. It's that kind of figure," he said. "You've got to bring it down to that level."

The communication style, message and tone should consider the issues various employees may be facing. For example, younger employees may realise that they should be focussing attention on their pension provisions but it can be a low priority, ranked after saving for a home or paying off debts.

"Unfortunately, long-term savings is often the last thing that people do with their money," said Bob Sperl, a senior international consultant with Watson Wyatt.

But this is an opportunity for employers to discuss taking a mature approach to financial planning, tackling debt before turning toward pension preparation, said Roberts.

"There is no point in saying, 'You must save for your pension. Stop going to the pub,'" he said.

Part of the disconnect between employers' offer of pension scheme and employees' enrolment is that perhaps many people don't realise how much they will need to save to fund their retirement. To ensure 66 percent replacement income upon retiring at age 65, an individual in the UK needs to save 15 percent annually from the time they are 21-years-old, said Roberts.

Increased longevity is only one of the reasons retirement provisions are becoming increasingly important.

"We're getting to a situation where it's likely most people will have 30 years of employment and are looking for that to finance 30 years of retirement," said Sperl. "The mathematics just doesn't add up."

February 2005

Jennifer Hamm is a freelance journalist based in the Netherlands.

Subject: Benefits