Changing the language used to describe pensions could significantly boost employee engagement with retirement savings, according to new research.
The survey, by Invesco, Nest Insight and maslansky + partners identified a number of common misconceptions around pension savings, and identified the barriers which are preveting people engaging with workplace finances.
It found 40 per cent of those surveyed did not know they can choose how much they pay into a pension. A similarly high proportion (one in three) thought AE contribution rates were a ‘recommended’ level of savings.
Not surprisingly a combination of these factors means that 2 in 3 savers (68 per cent) remain at this default savings rate.
The survey also found that more than half (52 per cent) of those saving into a pension were unaware of government tax relief on contributions, and around a third (33 per cent) weren’t aware that their employer also pays into their pension.
This research points out that AE has successfully harnessed people’s inertia. But this trait means they are less likely to think about how much they are saving and assess whether this is enough.
It highlights how policy makers and pension professionals can make simple changes, particularly in the way they communicate with savers, to increase these engagement levels.
It recommend that all communication follows four basic principles, that it dubs ‘the four Ps”: positive, plausible, plain spoken and personal.
- Positive: Too often, messages focus on how savers are missing out, not what they can get if they act. ‘You can’ is more likely to engage than ‘you should’.
- Plausible: People are pragmatic. A credible presentation of the benefits of saving is more likely to connect than visions of a dream retirement.
- Plain spoken: Employees want to hear what they will get out, not what they put in. Outcomes need to be shown in pounds and pence, not percentages. An estimated income figure, rather than pot size, was found to be most helpful, enabling people to think about what lifestyle they will be able to afford relative to their current annual income.
- Personal: ‘You’ is more engaging than ‘us’. People are more likely to want to make their own choices if they know they are on a ‘default setting’.
The research also identified some ‘foundational ‘messages that can help fill common shortfalls in people’s knowledge and understanding. These included stating in plain English that people can contribute more into their pension, that they can make a difference to their financial security late in life by rethinking contribution levels and the fact that contributions made when younger work harder for people.
The research concluded that for maximum efficacy these statements should be backed by concrete examples using pounds and pence.
Nest Insight director of research and innovation Jo Phillips says: “Very few people increase their contributions over the minimum rates, and there’s a concern that workers see them as recommended amounts they should be saving.
“Whilst not everyone needs to save more, and indeed for some people it may not be the right option now due to short-term money pressures or costly debts to manage, it’s clear that many people will need to save more than the minimum amount if they’re to achieve financial security in retirement. This is especially true of those who have started saving later in life.”
She adds: “This research contributes to the debate that’s now going on about how to get people saving enough for their retirement.
“The barriers that stop us prioritising long term savings are well known, and better use of language won’t change the actions of millions of people overnight.
“But these findings suggest that some simple changes to the words and framing we use to communicate workplace pensions can make a real difference. When combined with behavioural interventions, they could prove powerful levers for change.”
Invesco head of UK strategic institutional Stephen Messenger adds:
“We think it is vitally important that we support DC schemes and financial professionals across the industry to identify the issues blocking members from actively participating in their pension pot.
“Auto enrolment has been a huge success and it’s imperative we keep moving forward. A deeper understanding of how simple language can help unlock the opportunity for people to secure their future, is another important lever in helping members get the most out of their workplace pensions.”
