Sweet Choices; the nfpSynergy version of the marshmallow test

Each year at nfpSynergy we aim to distribute a portion of our profits to our 20 or so staff. We have christened this ‘The Passion Pot’. The idea is that people spend it on something they are passionate about and it appears as a lump sum in November pay packets.

Each year at nfpSynergy we aim to distribute a portion of our profits to our 20 or so staff. We have christened this ‘The Passion Pot’. The idea is that people spend it on something they are passionate about and it appears as a lump sum in November pay packets.

The core amount is now £500 after tax per member of staff and all staff get the same amount, irrespective of salary or whether they are part-time or full-time. We also aim to add to this basic amount depending on how successful our year has been, so that the total cost of our passion pot comes to around 40% of our profit (though this year we messed up and it came to 75%!). So far so good and no marshmallows in sight.

A couple of years ago we moved to a salary sacrifice pension scheme, where pension contributions are handled outside the payroll system, thus reducing national insurance costs. This means that pensions now attract no tax for either employer or employee. Two years ago we offered people something a bit different and said we would double their passion pot if they wanted to put all of it into their pensions at no cost to them (or us). Due to popular demand, we added a third option where people could put half of the money into their pension and take half as cash.

Now here are the marshmallows. Child developmental psychologists talk about the marshmallow test. The idea is simple: you offer a child one marshmallow to eat now or two if they wait for 15 minutes. As children develop, they weigh up the benefits of the two different options differently, so only at a certain stage of psychological development will child be likely to say it’s worth waiting for the greater reward.

Offering people double the benefit if they put it into their pension is our version of the marshmallow test. However, the timescales and rewards are very different. Some of our twenty-somethings might have 40 or 50 years before they cash in their pensions. A £1200 investment which grows at 5% a year for 40 years would be worth over £8000 on retirement. £1200 is also more than twice the annual value of our typical employee pension contribution.

So what did our staff choose? Well the first thing was that age didn’t seem to play a part in people’s decisions. Of the four eldest people in the company, only one put all of their passion pot towards their pension, while the other three did half and half. If age doesn’t seem to be a major factor, gender certainly was. All of the people who put their whole pot into the pension were women, and three of them were in their twenties. Women also outnumbered men in choosing half and half. More men than women took the cash.

So what do we learn from this? Well first, employers like us need to continue to think up new and imaginative ways to get people to put more money into pensions (over 90% of those eligible here already have a pension).

Secondly, it seems even the fairly substantial incentive of a double pension contribution is not enough for many people to give up their extra cash today.

It may simply be that our marshmallow was not enough of an incentive. If we had the pension equivalent of chocolate who knows what results we would have got!

Joe Saxton
 

What do you think about all of that? Does your company give out incentives? How many marshmallows would you eat?

 

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