Challenge
This is exactly the challenge employers need to be mindful to solve – what are the contribution options or approaches that close that funding gap?
This may look different from one organisation or one industry to the next but this is typically driven by one or both of the following:
1. Does the contribution structure help retain and recruit talent?
2. Does the contribution support members in saving towards retirement adequacy?
From our perspective it is clear that a contribution structure that simply provides funding at automatic enrolment levels simply isn’t good enough. From here, there is a wider range of options, from matching the employee contribution, to “better than matching”, double-matching and even non-contributory.
The right model for each business will be based on a number of considerations, but each should have the same goal in mind – to get more employees funding at the target rate, with employer and employee paying their “fair share”.
So what does ‘good’ look like?
Over the last few years we have experienced challenging times but even during the cost of living crisis, the importance of pension funding hasn’t faltered. In fact a number of our clients have seen an increase in demand for pension funding coming from their employees.
The challenge is finding that centre point of the crosshair between cost to the business and benefit to the employees.
One organisation we work with had a matching contribution structure and were considering increasing the maximum employer matched contribution from 5 per cent to 7 per cent.
Employees were enrolled at 4 per cent matched and as with many things in pensions apathy had resulted in the vast majority of the workforce contributing at the minimum level of matching.
The organisation already matched up to 5 per cent, but were cautious of increasing funding during a cost of living crisis.
So the first step was to provide education to remind people of the option to increase the contribution they can receive from the business but to also highlight what a good pot looks like and what this means they need to consider saving in order to get the retirement they desire.
This particular client saw 25 per cent of the workforce increase contributions by an average of more than 2 per cent.
They then used this as the business case to get increased employer matching approved by their leadership – and they will soon be funding at 7 per cent matching, or a total of 14 per cent of salary, well above the rule of thumb.
According to our latest research with REBA (Reward & Employee Benefits Association), many organisations are looking to increase their funding towards benefits and optimising spend.
