I firmly believe we can learn a lot about how to inspire consumers to save for a better retirement from the Australian approach. I recently had the privilege of attending a seminar with Senator Nick Sherry, the Australian Minister for Superannuation and Corporate Law, organised by Friends Provident as part of their Global Forum events. With AS$1.7 trillion already invested in citizens superannuation accounts, predicted to rise to AS$3.5 trillion over the next three years, our antipodean cousins are clearly far better placed than UK voters. According to Senator Sherry the new contributions amount to between AS$75-80 billion a year of which AS$55 billion is compulsory contributions. The vast majority of this money is invested via financial services companies and other institutions.
Having listened to the arguments put forward by the minister I believe there is a compelling case for a vastly better approach to compulsion that has a 20 year track record of success as an alternative to the personal account monolith that the current government has put in place. Interestingly all of this is achieved in a regime that offers no tax relief on contributions!
Software tools give us an ideal platform to articulate the benefits of financial products but can we please stop using phrases that sound like they come out of a horror movie. Salary sacrifice is another example of taking something that can be a positive benefit and making it sound painful. Who wants to talk about giving up salary, when in fact what we are really talking about is making salary work harder. Some people are getting the message. I was encouraged recently to note that Scottish Widows’ new tools designed to promote to employers and employees the opportunity to take advantage of more favourable tax treatment were branded more positively as ‘Salary Exchange’.
‘Death in service’ sounds like an employer working their staff into an early grave, rather than protecting their loved ones in the event of their early demise. Would it not be better to refer to such arrangements as ‘family protection’, because that is what it is doing?
Even the process of an employer making additional contributions is made to sound like a board game. “Matching contributions” does not quite have the same ring to it as “How to get more money into your pension”, yet for those whose employers offer such facilities the two terms are effectively interchangeable.
We all understand the mathematics of matching contributions but looking at some of the illustration tools you’d hardly recognise them.
How many consumers would understand that ‘benefits crystallisation’ is actually a process through which they actually receive their money? To me it sounds more like locking it away. Can’t we talk about “When you receive your income?” or ”when the investment starts paying out”? Equally, if I did not know what we as an industry mean by it I would probably think calculating a critical yield had more to do with making nuclear bombs than identifying the level of return needed to improve on an existing investment? Let’s speak in language they can understand, not jargon designed to confuse.
Members of pension schemes need to be given a range of tools to help them fully understand the benefits of the money they are spending and the great value for money it represents. If we present our services using a range of terminology that sounds like something out of the Marquis de Sade is it any wonder our customers try to give our products a wide berth.
The emerging generation of financial consumers recognise more than any previous generation that the state is not going to provide for them in retirement. They have equally grown up with the internet embedded in their lives and find researching products online the natural precursor to a purchase. We have the opportunity to build and deploy a wide range of planning tools to help them understand exactly how generous the benefits from pension schemes can be.
If we cannot learn ourselves to talk more positively about our products, how can we expect consumers to?