Britain is at a pension crossroads which could leave businesses facing a massive bill in the future.
If employers fail to act soon, they will be hit by a huge financial burden within the next three decades, academics from the London School of Economics warn in a report published today.
“Our research found that a clear system of communication and open dialogue significantly increases employee engagement levels with a workplace pension and improves staff contribution levels above 4 per cent,” said Dr Sandy Pepper, the author of the report and professor of management practice at the LSE.
“Without effective communication around auto-enrolment there is a fundamental risk that people will not recognise the importance and value of pension contributions.
“This represents a missed opportunity for businesses and a potential headache for Government.”
Auto-enrolment, which forces companies and workers to pay a minimum level into their workplace pensions, began last year and continues in a phased roll-out until 2016. Under the changed system the Government set a new 1 per cent contribution baseline for pensions. But the report points out that the level is in stark contrast to the current mandatory 9 per cent contribution businesses in Australia pay into employee pensions, which is rising to 12 per cent in 2019.
It adds that, for most UK employees, 1 per cent contributions will not be anywhere near high enough to provide a comfortable income in retirement.
“The challenge with auto-enrolment is that it’s mandatory, which drives apathy rather than engagement among employees,” said Michael Whitfield, CEO of Thomsons Online Benefits, which commissioned the research from the LSE.
“We believe auto-enrolment represents a great opportunity for companies to engage their people, support them in their pension planning while enhancing staff loyalty. Investment in communication is vital to ensure that employees actively engage in their workplace pension, understand it and recognise the value of it for a better retirement future.”