By Chieu Cao, CEO, Mintago

The lack of pension participation and knowledge in the UK must be urgently addressed. While it has been a longstanding issue, many people are still too passive when it comes to their retirement planning and saving.

However, this is not their fault. When an individual joins a new company, they’ll typically be put onto an auto-enrolment workplace pension plan. While this is a good thing for pension enrolment, it does little to encourage engagement, and many people frequently lose track of their many pension pots as they change jobs throughout their professional careers.

The magnitude of this issue is easy to see. 200,000 people contacted the Department of Work and Pensions (DWP) in the last four years seeking assistance in locating lost pensions,  according to studies by Hargreaves Lansdown. To make matters worse, there is an estimated £26 billion currently sitting in lost pension pots in the UK.

People clearly don’t understand their pensions well enough, leaving savers unaware of how much money they have set away. For many, this is only realised when they approach their 40s and 50s and begin to actively plan for retirement. Arguably, this is too late. As such, many people miss out on the maximum returns for their money because they are unaware of how they can manage it.

Clearly, more needs to be done to motivate workers to engage with their pensions. According to Mintago’s research, 46% of UK adults want their employers to do more to boost staff participation in pension plans, so this motivation needs to be instilled in the workplace.

Causes of a lack of engagement

So, why is there a lack of pension engagement amongst employees in the UK?

For one, the employment landscape in the UK has been altered significantly in the last two decades. As a consequence of these changes, people move jobs much more often than they might have done in the past. In fact, it’s estimated that the average person will now actually change roles 12 times in their career.

Since the implementation of auto-enrolment in 2012, employees have been building up new pension pots for each permanent job role. The problem with auto-enrolment is that by automating the process, many employees are not encouraged to manage and engage with their pension schemes. Furthermore, it provides them with a false sense of confidence that the retirement savings they are making through auto-enrolment will be adequate.

 As a result, many workers build up numerous pension accounts over the course of their careers without being fully aware of their savings goals or the whereabouts of their money.

Why is pension engagement so important?

Pension engagement from early on in an individual’s career could make all the difference to their long-term financial security and wellbeing. By beginning to save early, employees can take advantage of compound interest, which means that every additional pound saved in their 20s might be worth four times that amount by the time they retire.

Indeed, any delay to long-term saving plans comes at a price. For example, a 31-year-old would have to contribute 90% more than a 21-year-old to earn the same amount of pension money. As such, the earlier an employee starts to save and engage with their pension, the more financially secure they will be in the future. So, how can employers encourage them to do so?

Promoting pension engagement with financial education

Another benefit of early engagement is that it can reveal any financial knowledge gaps that employees might have regarding their pensions and long-term financial future. People frequently disregard their pensions because they lack a thorough knowledge of them. Therefore, employers can promote engagement by providing their staff with the materials they need to fully understand their pensions.

Encouraging employees to increase their financial literacy is one strategy. Unfortunately, financial education is often not prioritised in schools, so employees appreciate further assistance from their employers to better understand their pension plans. With this knowledge on hand, employees will be able to engage with their pensions to a greater extent and make better informed decisions about their finances. As such, employers who can provide this kind of support will also be contributing to the improvement of their employees’ overall financial health.

Promoting pension engagement with online wellbeing platforms

It can be a challenging task to promote pension engagement amongst the workforce. Fortunately, there are tools and third parties that can be of assistance to HR managers and business decision makers.

For example, there are online platforms such as Mintago, that provide an unbiased service to locate an employee’s misplaced pension and present all the relevant data in an organised and easy to understand manner. When an employee has access to such information, they will be in a far better position to make financial decisions, whether it be consolidating a pension pot or deciding how to invest their funds.

It’s no longer enough for employers to simply enrol their employees in auto-enrolment programmes without giving them any additional information. Instead, an accessible dashboard that allows workers to connect with their pension plan will definitely increase both engagement and financial wellbeing, with employees gaining control of their long-term financial strategy. As such, employees will feel more confident about dealing with short-term challenges like the cost-of-living crisis.

Additionally, these platforms can put workers in touch with impartial financial consultants or advisers who can help them overcome any challenges in their unique situations. As Mintago’s research revealed that 33% of UK adults required assistance managing their finances but didn’t know where to find it, making financial advisers easily and openly accessible would likely be helpful in this regard.

Promoting engagement with the salary sacrifice pension scheme

As with any conversation about a business’s workplace pension scheme, it’s worth noting the value of HMRC’s salary sacrifice pension scheme.  This can save employees (and employers) valuable money on national insurance (NI) contributions and income tax.

This scheme, which will help employers reduce their NI bills, also allows employees to boost their take home pay, as they will be paying less in NI contributions. In the long run, implementation of such a scheme should increase pension engagement because employees will see the immediate advantages whenever they receive their payslips.

Closing thoughts

To conclude, pension pots are arguably the largest asset that many people will own in their lives. As such, they could make all the difference to an individual’s long-term financial security. With this in mind, it’s crucial that employers ensure their staff can locate, understand and manage all of the pension pots that they might be entitled to. Indeed, those who do so will be contributing to higher levels of financial wellbeing in their workforce.

Chieu Cao is CEO of Mintago.

Mintago is the UK’s most complete, inclusive and unbiased financial wellbeing solution, helping businesses adapt and support their employees in these changing economic conditions. Mintago is FCA regulated and helps employees find lost pension pots with ease, providing financial planning tools, access to free financial advisers and over 1,000 pieces of educational content. Mintago also helps businesses and employees save money via the HMRC salary sacrifice pension scheme. It provides a hassle-free implementation programme, creating direct savings on National Insurance.