Few would disagree that better engagement with workplace pensions could significantly improve member outcomes. But there is less agreement among consultants and providers when it comes to how to quantify the value of this engagement, and whether to pay more for it.
This was one of the issues under debate at a recent roundtable event, held by Corporate Adviser on the power of engagement. Would advisers be prepared to recommend a scheme with higher charges if it could demonstrate better engagement levels? And how much higher might this charge be? Put another way, could these better outcomes be expressed in terms of a basis point charge?
While there was broad agreement that engaged employees will contribute more, be more likely to nominate beneficiaries, and at retirement make decisions that are more suitable for their circumstances, advisers were reluctant to pinpoint an exact figure for the delivery of what might be described as an engagement premium, given the number of variables involved.
A number of advisers agreed that overall value was important, and engagement was an important part of this. But Verlingue’s head of employee benefits argued that it was still difficult to quantify this, particularly in a workplace pensions environment where decisions were still often driven by price.
Barnett Waddingham partner Andy Parker said: “My concern is that it ultimately doesn’t matter how many basis points we are talking about on charges. People are buying on price, not value.”
James Biggs, a partner at Employee Benefits Collective (EBC) said that consultants have, to some extent, previously been complicit in driving prices down in a bid to get a better deal for clients and their members. Lower fees are transparent; in contrast there isn’t a guarantee that paying a higher fee for additional engagement services or more sophisticated investment strategies will deliver a better outcome overall.
But this is changing he said, with less of a laser-like focus on price today than was the case just a few years ago. John Yates, principal and DC proposition leader at Buck, a Gallagher company agreed : “I think there is more of a focus on value now. We regularly are recommending solutions that are not the cheapest.”
Consultants at the event said they would like to see better disclosure around engagement, to help them assess the potential value of a proposition. Howden Employee Benefits head of pensions Emma Hadley said: “The data isn’t there at present, when it comes to trying to evidence the cost and outcome difference between schemes offering this engagement and those that do not.”
Hargreaves Lansdown has a strong track record when it comes to engagement — a fact acknowledged by a number of consultants in the room. It also discloses information about a number of key engagement metrics, something it said it would like to see more providers do.
Hargreaves Lansdown senior corporate distribution manager Emma Jeffery said: “If there was more visibility, if providers were forced to give more clarity on a number of these factors, then advisers might be more empowered to have these conversations with clients about the value of engagement, not just the cost of these services.”
Many in the room agreed that it could be worth paying higher charges for engagement services if this could be proved to equate to better member outcomes. But Yates pointed out that this won’t necessarily serve all members within a scheme.
“Even with better engagement tools and strategies you are not going to be hitting 100 per cent of members. So there is a challenge here: if everyone is paying an extra 5 or 10bps for increased engagement that is really good for the members who are engaged, who are using these services and as a result investing more into their pension and ensuring they are in the most appropriate investments.
“But employers will also have people in their scheme who are paying an extra 5 or 10 bps for something they are never going to use and will simply leave their money in the default.”
Engagement metrics
There was discussion in the room about which metrics serve as a useful way to demonstrate member engagement. Hargreaves Lansdown currently collates and discloses information on seven key areas — although it says it is considering three further metrics.
Currently it collates data on the number of members exceeding a scheme’s minimum contribution; the proportion of members investing outside of the default, the numbers transferring in another pension onto the platform, the number opening another account — be it a Isa or Junior Isa; the percentage nominating a death beneficiary; and well as the numbers signing up for online access and using this access in the last 12 months.
HL’s senior corporate distribution manager Ian Foster said that together these metrics show members are engaging with a range of services, responding to scheme communications and taking an active interest in their retirement savings, which is likely to lead to better overall outcomes.
He added that the company is potentially looking at collating further data points relating to engagement. These include the number of people who have changed the default retirement age, those making use of pension calculators and those who review the default fund at least once a year.
There was speculation that the forthcoming value for money (VFM) framework may compel providers to explicitly report data on these factors, given engagement is one of its key measures. Full implementation may be several years away though, and proposals could be changed or watered down by the incoming administration after the general election.
Foster said that there is nothing to stop providers collating and disclosing information on these metrics now — and he urged advisers to demand better disclosure from providers.
“The advisory community has a massive part to play in this. If they say provider X is doing this, they could demand other providers also track what their members are doing across these metrics. If they ask all providers to do this, this could create a more competitive market. There is obviously a discussion to be had on what is the best way of measuring engagement, and which factors should be disclosed but this could help drive change across the industry.”
But advisers were sceptical about some providers’ commitment to engagement.
First Actuarial DC consultant Simon Redfern said auto-enrolment had bred a level of complacency among some providers, with contributions rolling in and opt-outs remaining low. “With auto-enrolment, unless the scheme is a real outlier, 90 per cent of people are going to join the pension scheme and never leave so the engagement piece is very secondary.”
Isio’s head of client engagement and communication Sam Charles added that with some providers the engagement element “feels a bit like a tick box element”.
He said: “Providers might have an app or a modelling tool or some sort of webinar service; they can’t really compete in the market without these. But often it feels like they’re doing it because they have to, because that’s how we as consultants appraise them. But it is all quite boilerplate stuff. There’s no overview or evaluation of whether this is actually changing member behaviour, or how it aligns with what the employer wants to get out of the service. And if employers do want something slightly different it can be hard to get them adjusted to accommodate that.”
Merritt agreed that for many providers engagement doesn’t go much beyond posters and email campaigns. “That’s not really engagement. It’s basic education at best. To be brutally honest I don’t know if they are interested in doing what it takes to get members properly engaged with their retirement savings, particularly
when it comes to boosting contributions, because there has been this race to the bottom on price.”
He said while consultants would like to see some providers do more on engagement it can be difficult raising the issue. “How do you do this when some of the leading providers in the market don’t even have an account manager any more.”
Contribution levels
Those at the event agreed that the key purpose of engagement was to drive better member outcomes, with the key element being higher contributions to ensure an adequate retirement income — although there was an acknowledgement that this remained challenging in the current environment.
Again this background, advisers noted that some providers appeared to be meeting this target. Hargreaves Lansdown pointed out that 50 per cent of its scheme members were paying more than the scheme minimum.
Foster said: “This is something meaningful that can be achieved now, rather than waiting for legislation about raising AE contribution levels to catch up.”
Advisers questioned though whether these higher contribution rates were due to the profile of HL schemes — with the provider having a particularly strong footprint among financial services companies and other City organisations, which are likely to have more financially savvy employees on higher than average salaries.
But Foster pointed out that these higher contribution levels occur across its book of business. “We can see this across our clients, regardless of profile, and this includes mainstream employers and charity organisations. These higher contribution levels are because we’re intervening, and showing the benefit of making these increased payments.”
Many agreed that while technology undoubtedly has a role to play, having an element of human interaction can be a key engagement tool. Advisers spoke of the benefit of on-site events and workshops, giving employees the opportunities to ask questions, and to be shown how to use the online apps and modellers available.
But Parker pointed out that again, there is a cost involved in providing such face-to-face services, with the employer typically paying for these adviser-led services. Biggs said: “This human involvement is clearly a massive part of the answer, but unfortunately it’s not in most people’s budget.”
He added that this face-to-face option may be harder to deliver if consolidation continues at pace in the market, given the significant size of many schemes.
“The focus on price has made everyone lean towards technology. This doesn’t mean that you can’t engage members, but you have to get it right, and I don’t think the pensions industry has got it right yet — particularly when it comes to the younger generations.”
It has been estimated that Millennials have an eight second attention span, and this halves for those younger Gen Z workers. “If people are flicking through reels or TikToks they probably assess whether they are going to click on it within half a second. Whatever we do digitally it has to be especially brilliant or we’ll lose their attention straight away,” he said.
Hadley agreed this was a challenge for the industry, which isn’t helped by employees’ general perception of pensions. “People often have a fear about pensions, that they are too difficult to understand, or a bit scary. This is where the personal touch can really help, giving people a safe space to ask some questions. It’s about how we create those safe spaces, which may be face-to-face, but could also be in a digital environment.”
However Foster said that if face-to-face interventions work, shouldn’t this be something employers and providers look to invest in? Although he said there needed to be better data on engagement and outcomes from across the industry to inform and drive this debate.
“If this intervention results in higher contribution levels, this is good for the employee, the employer and ultimately the provider too. But this does involve additional costs, but I would argue it is worth spending this.”
