Standard employee benefit packages that include a pension, insurance and healthcare feel increasingly outdated in today’s jobs market. Younger employees are unlikely to stay at one company for life. Nor are they likely to retire in their 60s as their parents have done. A simpler reward system, where employers pay a flat salary would make far more sense for today’s multi-generational workforce.
For employees, this change would mean receiving higher salaries of course. The average employer contribution to a pension scheme is about 6% of salary. Add that to the money previously spent on benefits and companies can present a much more eye-catching salary.
According to government figures, over 47,000 employers have automatically enrolled their staff into company pension schemes following changes in legislation, with more set to follow. While the government’s attempts to induce more employees to save are commendable, the lack of understanding around the subject means millions will still not be saving enough for a traditional retirement.
In any case, younger generations see little point in paying into a scheme that they cannot access until much later in life – particularly when they are facing high house prices and student debt repayments in the more immediate term.
Paying the workforce a flat salary with no benefits would shift decision making towards the individual and, I hope, would encourage people to take responsibility for their finances. Rebranding pensions as long-term saving vehicles could help. Up to now, the pensions industry has typically done a poor job of explaining the benefits of their products.
The freedom to choose should enable employees to use their money when they needed it most – whether that be saving for retirement, mortgage payments or private education for their children. April’s changes to the pensions rules may have been far-reaching, but the basic principle remains that people cannot access their pension savings until they reach retirement age. I believe people should be allowed to access their savings at any stage in life.
From an employer’s point of view, the motivation to provide a pension scheme has waned following the removal of the default retirement age in 2011. An increasingly mobile workforce has also eroded the sense among some employers that they have a paternalistic obligation towards staff. If someone only stays at the firm for a couple of years, why should they worry about that person’s retirement plans?
Even if we did move towards a flat salary world, employers would still need to provide access to benefit schemes. Many employees will continue to value the opportunity to join schemes – long-term pension saving or healthcare schemes are valuable to employees. I am simply proposing that we remove the element of compulsion so employees can make choices based on their own priorities.