Introducing a new piece of legislation that requires consumers to contribute part of their salary is always going to be a challenge. Wage growth remains low and we are facing high inflation and rising food and fuel prices.
For those who can save money, goals such as home-ownership have been pushed farther away as mortgage lending remains low and bigger deposits are required.
Families with teenage students are facing higher university fees and those who commute to work are facing increased rail costs. Short-term pressures are at the forefront of people’s minds.
So it is easy to think that it is a bad time economically to be launching auto-enrol-ment, which for the biggest employers is now less than 12 months away.
People are undoubtedly still finding things tough and the option to opt out may be appealing to those feeling the financial squeeze. But the current climate in fact makes auto-enrolment even more of an opportunity because consumers are acutely aware of the value of money at the moment. The real challenge is not to persuade people not to opt out but to make sure they understand the value that auto-enrolment provides through programmes of engagement and education.
Consumers are starting to make more astute financial decisions and this is the big selling point for auto-enrolment. Not only does saving into a pension involve tax advantages but it allows savings to grow at an even faster rate because employers will be making contributions too. It is a special offer starting with, buy 1 per cent, get one free.
We need to engage with employees to ensure they understand that auto-enrolment means someone else – their employer – is making a contribution too. We need to explain that because their employer is making contributions directly into their savings pot, the total contributions going into that pot are much greater than the sum of the pounds they see deducted from their wages each month.
We must draw on the savings mentality that the last few years have engendered so the whole benefit is visible, not just the individual contribution. This will clearly be a challenge, given that so many people are failing to save anything at all, but the launch of auto-enrolment is the ideal opportunity to launch a new programme of engagement. We simply need to ensure the messages are delivered clearly so that the added remuneration benefits of remaining auto-enrolled are clear.
If we succeed in doing this, then launching auto-enrolment in a tougher climate will help to minimise the number of people rushing to opt out.
Martin Palmer is head of marketing of corporate benefits at Friends Life