Employers urged to educate workforces before Auto-Enrolment
Financial Education and Literary Advisers chief executive Blake Allison, who advises US government agencies on financial literacy and the use of behavioural finance, said it would become harder to get employees to increase their contributions after they are auto-enrolled.
He said in the US auto-enrolment through companies’ 401(K) schemes has increased the number of savers, but simultaneously driven down the amount people are saving.
Allison said: “People understand they have been auto-enrolled and psychologically think they are doing what they need to do to reach a secure retirement but because they lack the financial education they are actually on cruise control.”
In the UK concerns have been raised that the auto-enrolment contribution rates set by the government will not be high enough to create adequate retirement incomes.
Allison, who was in the UK talking to clients of Friends Life, said employers must take action now to educate their employees.
He advocated using technology to engage workforces with personalised information about their finances, such as conducting financial risk assessments.
He said online platforms in the US allow employees to earn badges as they increase their understanding and compare the size of their pension pot with their colleagues.
Allison said it was important to look further than participation rates, arguing if an employer worked on improving an employee’s credit rating it would help drive down interest rates and free up their finances – which might in turn allow them to contribute more to their pension scheme.
He added: “The priority is to set this up before auto-enrolment. One of the risks is waiting until it is implemented.”
Friends Life director of distribution, corporate benefits Russell Welsh said large employers were interested in the approach, particularly to get their employees to value the scheme on offer.