Engaging employees with pension planning

Getting employees engaged with their pension investments can have several benefits for both employees and employers.

When employees understand the importance of saving for retirement and actively engage with their pension investments, they are more likely to be financially prepared for retirement. This can reduce stress and improve the overall well-being of employees.

Employers who provide education and resources for employees to engage with their pension investments are more likely to keep their employees. This is because employees feel valued and supported by their employer, which can increase job satisfaction and loyalty.

Engaging with pension investments can provide an opportunity for employees to learn about financial planning, investing, and the importance of long-term savings. This knowledge can benefit employees beyond their pension investments and lead to better financial decision-making in other areas of their lives.

When employees engage with their pension investments, they are more likely to make informed decisions about their investments and contributions. This can cause better pension outcomes, such as higher returns and more retirement income.

We can make investments in pensions more meaningful by using layperson’s terms to explain the funds and what they mean for employees. Here are some ways to explain pension funds in simple terms:

Asset classes: A pension fund will typically invest in a range of different asset classes, such as stocks, bonds, and real estate. These represent different investments with varying levels of risk and return. For example, stocks represent ownership in a company and can provide higher returns but are also riskier than bonds, which represent a loan to a company or government and offer lower returns but are considered safer.

Diversification: By investing in a range of asset classes, a pension fund can diversify its investments and reduce risk. This means that if one asset class performs poorly, other investments in the fund can help offset those losses.

Risk profile: Different pension funds will have different risk profiles, depending on the investments they hold. Some funds may be more conservative, with a greater proportion of bonds and other lower-risk investments, while others may be more aggressive, with a greater proportion of stocks and other high-risk investments.

Fees: Pension funds charge fees for managing the investments, which can impact the overall returns. It’s important for employees to understand the fees associated with their pension fund and how they compare to other similar funds.

Yes, bringing environmental, social, and corporate governance (ESG) into the conversation can help employees relate their pension investments to support responsible and sustainable objectives. ESG refers to the consideration of environmental, social, and governance factors when making investment decisions.

By incorporating ESG considerations into their pension investments, employers can show their commitment to social responsibility and sustainability, which can be attractive to employees who share those values. This can also help employees understand the broader impact of their pension investments and how they can support positive change.

For example, an employer might explain that their pension fund invests in companies with strong environmental practices, such as renewable energy companies or companies with low carbon footprints. Or, they might explain that the fund avoids investing in companies with poor labour practices or that engage in unethical behaviour.

By linking pension investments to ESG considerations, employers can help employees see how their investments can align with their personal values and beliefs. This can lead to increased engagement with pension investments and a greater sense of purpose when saving for retirement. Research has shown that incorporating ESG considerations into investment decisions can cause better long-term performance, which can benefit employees and the pension fund alike.

By using simple terms to explain these concepts, employees can better understand how their pension fund works and what it means for their retirement savings. This can help them make more informed decisions about their contributions and investment choices.

Overall, engaging employees with their pension investments can improve retirement readiness, increase employer retention, provide valuable education, and lead to better pension outcomes for employees.