Posted by

Lynn Graves, Head of Business Development - Scottish Widows

12 Nov 2015

If you ever needed convincing that a series of small actions can make a big difference, you only need look at British cycling coach, Sir Dave Brailsford.

Using the idea of marginal gains, Brailsford broke down each element of training, improved it by 1%, and when added together there was a significant gain in overall performance. Over 12 years the British cycling team won 18 gold medals at the Olympics and Team Sky won successively at Tour de France.

But what does cycling have to do with pensions?

The pot workers need to build over their working life in order to have a comfortable retirement, may seem as unachievable as winning an Olympic medal. By breaking down a saving goal into smaller achievable chunks, and nudging at appropriate times, both employees and employers can ‘win’ the benefits of being financially prepared for retirement.

Small changes equal big returns?

Sustained marginal improvements to an approach to lifetime savings, makes a comfortable retirement achievable.   

Let’s say a 30 year old male, Tom, who earns £30,000, pays 5% into his pension, his employer pays 3% (the minimum auto enrolment contributions from 2018). When he retires at 68 he would have an estimated pot of £123,538 – assuming he’s saved nothing before now.

But, if he made a marginal increase of 1% every year, for five years, he would grow his pot from £123,538 to £213,255 – an increase of 72.6%. By timing his contribution increase to coincide with his annual pay review, Tom would be able to up his pension payments without having any less in his pay packet every month. A classic case of you can’t miss what you’ve never had.

This marginal increase will certainly make a big difference to Tom’s future, but the challenge is to help employees like him understand what impact small changes can make, and ensuring they don’t opt out of auto enrolment.

Turning good behaviours into habits

Building good behaviours into habits are the driving force behind marginal gains, the trick is to make is easier for employees to adopt these behaviours.  Applying nudge theory and behavioural economics can prompt workers to make small changes at a time when they’re thinking about their future.

Employers should think about what the right moments are to prompt employees to think about their retirement plans, like promotions and marriage.

Some companies like Lloyds Banking Group, of which Scottish Widows is part, encourage employees to review their pension contributions yearly alongside their flexible benefits. Another good way to achieve this is helping employees understand how they compare to peers.  This ’people like me‘ approach really resonates with savers and can be effective particularly in changing behaviours for those who are under saving in comparison to their colleagues.

Top tips

  • Build in annual ‘nudges’ at pay and flexible benefit reviews or key life events
  • Encourage ‘good behaviours’
  • Explain the impact small changes could have
  • Share tools and calculators with employees