We have 9m more people saving off the back of inertia, but contribution rates are low and we need to get this generation saving more, and that means engaging people with their pensions. We need to help people to emotionally relate with their pensions, so they feel better about saving and value it more.
If you ask people what engages them, one factor is where their money actually goes. So we need to develop a relationship between pension schemes and their members, that can be delivered on digital platforms in a personalised way at low cost. 68 per cent of young savers say they want their money to be used for good in the wider world, 86 per cent support sustainable investment, and 84 per cent want to invest in responsibly run businesses.
There is a rich set of stories available to pension schemes that would really engage members – take high boardroom pay, for example, which has been everywhere in the media recently. This issue would not be all over the Daily Mail if people didn’t find it interesting. The pensions industry is missing a trick in showing how it is an active participant in pushing the interests of its members and society at large across a wide variety of ESG issues.
And providers are behind when it comes to technology. Of the top 10 auto-enrolment providers, only two of them have an app – yet with today’s technology they could be delivering engaging targeted messaging on issues that interest lots of people at very low cost.
Part of the problem is that although it is the savers who are on the hook for investment risk, the commercial relationship is with the employers. So the whole industry is geared towards pleasing employers, not employees.
This problem is reinforced by the way independent governance committees and master trust boards are designed. In the defined benefit world, where you have member-nominated trustees, we see a focus on ESG issues that matter to people. Auto-enrolment providers have no members on boards of trustees or independent governance committees – they have people from within the industry.
One way to manage the risk of higher opt-outs is to sell in the benefits of pension saving more actively, in other words to seek to increase people’s engagement with their pensions.
Our research has found a huge opportunity being missed to get people feeling more positive about their pensions and about saving in general. For young people, it’s essential to make the case that their pension is already making a positive difference to their lives. It’s not all about waiting until retirement. The savings crisis remains acute in the UK but we believe there are low cost opportunities for the pensions industry to make a real difference.
We recommend that:
- Auto-enrolment pension providers be required to report annually on the percentage of member registrations on, and active usage of, their online platforms. Members who have not registered should be proactively encouraged to do so, and providers should report on their strategies to increase both saver engagement in general and member contributions in particular.
- Auto-enrolment providers seek to engage scheme members by communicating about investment impacts that they know to be of interest to their members. Such communications to members could draw on the responsible investment and stewardship activities that are already undertaken in providers’ default funds.
- Auto-enrolment providers embrace the opportunities posed by digital and social media. Pension providers should seek to present information in visual and emotionally engaging ways. All auto-enrolment providers should have an app and an active digital presence which seeks to make pension saving aspirational and engaging for members.
- Auto-enrolment pension providers survey members for their views on how and where their money is invested. The results of these surveys should inform communications, including tailoring them to members’ specific interests. The results of such surveys should be publicised to members.
- Auto-enrolment pension providers offer a short list of choices of alternative funds beyond the default fund, using accessible language to describe these options. Pension providers should engage with those members who are interested in achieving deeper social impact with their assets to design a fund option that encompasses social impact investment. Providers should undertake testing to determine how such an option could best encourage higher contributions.
- The DWP should prioritise action to increase pension saver engagement and financial inclusion. This could include exploring the role of employers in enabling or inhibiting member engagement and the costs and benefits of giving people the freedom to choose their own pension provider. The Minister for Pensions could sponsor an industry-led advisory group on member engagement and financial inclusion to examine mechanisms and policies that could help achieve deeper engagement with pensions, higher contributions, and stronger long-term outcomes for UK pension members.