How relevant are pensions for recruiting and retaining staff?

Pardon the Interruption

This article is just an example of the content available to mallowstreet members.

On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.

All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.

Pensions are undoubtedly the most important benefit employers provide, both in terms of the financial value and the impact on employees’ lives, yet they rarely feature in job ads. Have pensions lost their value in attracting and retaining staff? 
In March this year, the National Audit Office says the Treasury and Cabinet Office should work with employers “to understand how public service pensions can help them recruit and retain the staff they need”.    
Similarly, after it was suggested that Transport for London should “modernise” its open defined benefit scheme, TfL says in January that any potential reviews or changes to elements of the pay and benefits package should be “considered holistically”, to allow TfL to still attract and retain talent.
Both the NAO’s and TfL’s observations relate to defined benefit pensions, where benefits are explicitly linked to years in service and thereby create a direct incentive to stay in a role – particularly in an age where few DB pension schemes remain open. So how important are pensions more broadly in getting talent on board – and keeping it there?  

Employees value pensions higher than other benefits 

Ealier this year, consulting firm LCP looked at what type of benefit employees value most, by age group. The survey showed that the top benefit for people under 45 was flexible working, with pension coming third in the youngest two groups and moving up to second for the 35-44 age group. From age 45 onwards, pensions consistently took the top spot. Retirement provision was also the third-highest concern for 55-64-year-olds, while financial health figures as a concern for people between the ages of 25 and 54. 
A pension was thus the most valued benefit overall, just ahead of flexible working, with life insurance coming in third; these were also the most offered benefits, being mandatory in the case of pensions.  
Source: LCP
“Pensions are hugely important and the most valued benefit,” says Heidi Allan, senior financial wellbeing consultant at LCP. “Even for the younger age groups they are still vitally important.  There is an expectation of pension availability post [auto-enrolment] and the importance of the details [increases] as employees settle down, have their families and start thinking towards the future,” she observes. 
Despite this, companies still often do not disclose their pension contributions in job adverts and are not required to do so; they are not even required to state a salary in ads. But there are differences between industries, says Allan; those that are more focused on finance or benefits place more weight on pensions, and candidates will often ask about the details at interview and during negotiation. With other industries, however, this level of detail “doesn’t appear to factor in the recruitment early stages”, she says, although it could be a deciding factor when choosing between job offers. 

How has the pandemic impacted benefits? 

People’s finances have often changed during the pandemic, and for many employers, financial wellbeing is rising up the agenda as a result, accelerating a trend already that already existed pre-pandemic. 
“Personal responsibility for financial health is growing and employees are recognising the importance of good financial health to help them cope with the unexpected so I do wonder whether more focus will be put on short, medium and long-term finances which could see a slight shift change for communication and benefit strategies over the coming months [and] years,” says Allan.   
However, despite employees saying they value pensions, few of those who were able to save more during the pandemic have put the extra savings into their pension – just 5% increased their pension contributions. Instead, the vast majority (61%) directed the money to a separate savings account and 28% kept it in their current accounts. 
Allan attributes this to the ‘accidental nature’ of the savings due to Covid, saying that this led to a different perception of that saving.  
“Pension, medium and short-term saving are an active choice. The savings as a result of covid are not an active choice,” she argued, meaning that many view it as a bonus or windfall rather than actual savings. “We are yet to see the full extent of the decisions employees make with that money – it’s a great opportunity to promote the importance of short, medium and long-term options,” she says. 

Employers highlight benefits as competition for staff intensifies in some sectors 

The pandemic and labour shortages are changing what employers are offering, agrees Charles Cotton, senior policy adviser for performance and reward at the Chartered Institute of Personnel and Development. Employers insectors like hospitality or transport are increasing pay rates or offering signing-on bonuses to attract scarce talent, as well as reviewing their overall benefits package, he says.  
“Many employers have used the opportunity to revamp how they communicate about the benefits on offer, such as highlighting wellbeing benefits. Things that used to be seen as a perk by staff pre-pandemic, such as a flexible working, are now expected, so many employers have also been looking at how they will be able to accommodate such expectations post-pandemic,” he says. 
Despite this, few include pensions in their job ads. Amid the current focus on wellbeing, pensions should also be communicated regularly to existing employees so they don’t forget about it or misremember important information, he advises.  
Unlike LCP, the CIPD has found that while being paid enough and being paid fairly are crucial for employee financial wellbeing, being able to save for the future, such as for retirement, is more important for younger employees than older ones, who are more concerned with paying down debt. 
However, “employees often lack a basic understanding about pensions, so it’s important that employers also explain how the plan works and where and how to find out more information, such as from the provider or such websites as Money Helper. Otherwise, staff won’t value the pension arrangement on offer,” he argues. 

Do employees understand the value of benefits? 

Educating employees on the value of their benefits is key, agrees Charlie Goodman, employee benefits director at Cervello Financial Planning. If an employee or potential recruit understands the value of the employer contribution in relation to their salary and tax status, then pensions can be a very powerful tool, he says, but “if employees don’t understand the benefits to them, in my experience they will tend to pick holidays and flexible working as higher priorities. It’s a huge danger of employee benefit surveys that these decisions tend to be made with a lack of real knowledge of the true value.” 
Although employees might be more aware that they have a pension compared to some years ago, “this really doesn’t mean they understand what they are or the benefit to them”, says Goodman. 
The fact employers are poor at advertising pensions as a benefit does not help, either. “I have probably seen fewer than 10 job adverts indicating a pension contribution,” says Goodman, who adds that compulsory inclusion would lead to improved pension awareness by encouraging comparison. 
Employers are currently focusing on healthcare benefits among others in light of the pandemic. Goodman says he has had many enquiries from employers wanting to offer better healthcare or looking to make themselves stand out as best in market this year, after a “quiet” 2020. “Some sectors such as logistics and technology are really struggling to recruit and retain the employees they need,” he notes. 

What role do pensions play as a benefit? Are employers doing enough to educate people on this? 

Charles Cotton
Charles Goodman

More from mallowstreet