It is almost 10 years since the start of auto-enrolment. Is it time to look again at how the industry can encourage better engagement with pensions?
Engagement has been a perennial problem for the pensions industry. Pensions have become ‘passive’ products, which from a members’ point of view means someone else is looking after their future. Auto-enrolment has increased the number of people saving into a pension but we can’t kid ourselves that this is enough. In the absence of the government mandating increased contribution rates, we need to engage members to get them to take an interest in their own retirement savings.
In the past engagement has focused too much on the ‘stick’ and not enough ‘carrot’. Telling people they face poverty in retirement unless they save substantially more can have the opposite effect, and lead to widespread dis-engagement with pensions as a whole. We need to be more creative about how we talk to members. We also need to be realistic about what will work. As an industry we are not going to engage everyone, so it is important workplace pensions have strong default strategies.
How can the industry engage younger workers with pensions?
More young people are now saving into a pension, thanks to AE, but perhaps this is a generation that has been underserved by the industry, particularly when it comes to engagement. The standard messages used by the pension industry don’t seem to be resonating with this age group. Asking a 25-year-old to think about the money they will have as a 70-year-old is not likely to stimulate much interest. But rather than looking so far ahead, we want to get people thinking about their savings today, and where their pension funds are invested. Asking people what their pension can do now to build a better future — whether it is in terms of investing in renewable energy, forestry, wind farms, micro-finance or agri-tech — might be a better way to get interested. We need to get people closer to the underlying investments so they can see the good their pension is doing.
How can technology help with engagement?
Pensions have been slow to fully embrace digital innovation. Employees want to be able to manage their pensions as they manage most other things in their life, from checking bank accounts to booking cinema tickets. Pensions need to offer this same ease of access. At Cushon, we see technology as a crucial component of an engaging pension scheme. It allows us to deliver a personalised journey, sharing project content to members and providing full transparency around pot value, costs and investments. Our own research shows technology can help members of all ages become more engaged with their pensions — this isn’t just about younger savers. For example, technology can not only help people see where their pensions are invested, it could also show them footage of the first golden eagle chicks hatching in a forestry re-wilding scheme. People can see how their money can make a tangible difference. There is real potential to start doing things differently with pensions.
Can technology help create jargon-free pensions?
We certainly hope so. One of the biggest challenges to the industry is ensuring pensions are simple and easy-to-understand. Adopting an app-first approach, getting rid of lengthy paper documents and making communications more relevant can improve member experience across the age spectrum. This applies as much to those approaching retirement, and the challenges they now face negotiating pension freedom rules, as those who are just starting to save. But we mustn’t forget employers and consultants and the important role they play. Whether it’s having access to good MI and data insights, or being able to easily manage payroll reports and payments or implementation, complexity has to go in favour of simplicity. Technology has a key role to play in this.
How can engagement lead to better retirement outcomes?
We need to start by getting people aware of and thinking about their pensions. ESG issues and impact stories are a great way to do this. But this also gives us the opportunity to ask members to consider whether they are saving enough for their future, what the impact might be of taking on more risk with their investments, or whether they need to nominate a beneficiary, for example.
Engagement is about members taking ownership of their retirement savings. The power of pensions means people can now harness their ability to deliver good
retirement outcomes whilst also doing good for the planet. We want to make our members proud of their pensions — whether it is because they invest in a net-zero-now proposition, or because they are getting good returns on their money. Hopefully both will play a part.