A new report, The Cost of Tomorrow, from the Tilney Group suggests the vast majority of over 45 year olds believe they will either improve (36 per cent) or maintain (48 per cent) living standards in retirement, but evidence shows they are underestimating their retirement budget by almost £100,000.

This report is one of many that highlight the extent to which people underestimate how much they need to save to enjoy the retirement lifestyle they want.

But is this set to change?

Through ‘automatic enrolment’, the government has brought millions of people into workplace pensions and now with changes to the ‘salary sacrifice’ scheme being introduced in April 2017, there is a great opportunity for employers to communicate the benefits of pensions and encourage them to save more for their future.

From April, employees will no longer have access to popular benefits such as discounted phones and iPads, as salary sacrifice schemes will now support pensions, cycle2work schemes and childcare. Whilst the younger generation may be disappointed, the government may have done them a huge favour.

By removing some of the 'sexier' options; has this paved the way for employees to think more with their financial heads and less about their joysticks?

By clearing away some of the 'benefits clutter' available to employees, they can concentrate on things that will provide longer term benefits such as becoming healthier by embracing a Cycle2work scheme or increasing their pension savings to build a bigger retirement pot.

But what can employers do to ensure their workforce is ready to embrace the changes?

The first consideration is to review their salary sacrifice arrangements. They need to understand exactly what salary sacrifice is, how it works and whether it is appropriate for their employees.

The next stage is to design the scheme and then make sure it is managed properly. This means ensuring that areas of risk are mitigated from both an employer and employee perspective and to ensure all parties maximise the benefits of salary sacrifice.

With the scheme up and running, it needs to be promoted to staff. This is one of the most important steps, but one which many employers fail to do well. One of the biggest challenges companies face is engaging people with their workplace savings and bringing the subject of pensions to life and they need to realise this is a major opportunity to change that.

We talk about selling the ‘sizzle not the sausage’ – this means not just discussing the bottom line figure, which out of context can seem meaningless, but the benefits and the kind of lifestyle associated with different levels of retirement income. The conversation needs to explore people’s aspirations. What kind of lifestyle do they expect? What are their dreams? How do they want to live? How much time do they want to spend with on family or travelling the world and what kind of care would they want to receive if they are not in good health?

Employers could use presentations and individual face to face meetings, as well as materials such as guides, FAQs and pay modellers, to communicate and to explain the workings and benefits of the scheme to employees. Once an employee understands how salary sacrifice directly benefits them then it becomes truly valued.

Employees who would have quite happily bought a new iPad (or similar) need to be encouraged to think about putting their £50 a month towards their future. Whilst it’s not sexy and there’s no instant gratification in making these decisions, it’s ultimately a decision people can’t afford not to make.

Remind them that after April 2017, whilst they won’t be able to get a salary sacrifice iPad, saving for their pension will still be tax and NI free and could give them the income they need for a comfortable retirement. Minimum employee contributions are set to rise over the next few years to 8 per cent and hopefully further after 2020 – which is very promising for younger employees.

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