Pension firms need to change the way they communicate with older millennials and ‘Generation X-ers’ to boost pension savings according to new Nest Insight research.
More positive and empathetic communications that highlighted the savings people had made to date, and broke down future savings options into smaller steps, can result in a ‘striking change’ to levels of engagement, according to this research.
The report also called for pension firms to use concepts like an annual ‘Pension MOTs’ to further drive engagement levels among the 35-54 age group.
This research, conducted by Invesco, Invesco Consulting, maslansky + partners and Nest Insight, found those in their late 30s, 40s and early 50s were often disadvantaged when it comes to pension savings, compared to other age groups. The majority of this ‘squeezed generation’ had not ever had access to DB schemes, but had only started investing via AE mid-way through their careers.
Nest Insight said that while there was still time to make adjustments and ‘catch up’ on pension savings, many of the common approaches to pension communication are ineffective because they emphasise the barriers people face, rather than helping overcome them.
It identified three common barriers: affordability, feeling overwhelmed by how much they need to save, and low confidence about making financial decisions.
For many people aged 35-54, the research barriers combine to create a sense of defeatism that can put them off taking the first step to improving their retirement income. However, it said evidence suggested that focusing on three key messages led to a ‘striking change’ in people’s intention to take action.
These messages are:
- ‘You’re already on your way to having a retirement income’: The research found people’s confidence was boosting by an emphasis on what they had already saved to date, which would also include any state pension entitlements.
- ‘Start from today and plan forwards’: To help people understand the gap they need to close, people should be encouraged to start with what they know, considering their current financial situation and then planning forwards.
- ‘There are steps you can take’: As well as providing some realistic ‘next steps’ the research suggested that it was important to help people realise that they don’t need to solve the problem all in one go – and that it’s not too late for them to make a meaningful difference to their life in retirement.
One concept from the research that proved positive was the notion of a “financial MOT”. This report found a pensions MOT service is already available but awareness of this as an option appeared low.
Research found people in this age group liked the idea of a planning checkpoint that’s regular but will not take up too much of their time. For example, a message that suggested people sit down for 30 mins once a year was more positively received than suggestions of people sitting down on a “regular basis”.
Nest Insight, director of research and innovation Jo Phillips says: “People in their late 30s, 40s and early 50s are at a life stage when retirement is perhaps starting to come into focus. Yet, despite the efforts by pension providers to deliver messages and tools designed to encourage retirement planning, many people in this age group are not engaging with their pension savings.
“Through this research, we’ve explored whether alternative choices of language and message framing might help motivate people to take the first steps towards being in control of their retirement income, and make existing tools and support more effective. Overwhelmingly, we found that communications that meet people where they are, with empathy and reassurance, and make retirement planning feel manageable, can give them the boost they need to engage for the first time.”
Stephen Messenger, head of UK strategic institutions at Invesco adds: “It’s widely recognised that effective communication is one of the largest barriers Defined Contribution (DC) practitioners face in engaging with their members. This study re-emphasises and highlights that the same communication targeted at people within different stages of their retirement planning can quite easily be tilted to become much more effective.
“The framework and method of communication outlined in this report is one which we strongly believe can be successfully applied to any DC scheme communication in a practical and easy to understand way.”
Using a multi-method approach, including the use of ‘Emotional Response dial technology’, this research looked at people’s retirement planning starting points and the barriers that prevent them from engaging with it.
Different words, phrases and communication approaches were then tested to identify which language and framing were most engaging and persuasive, and develop optimised communications.
Philips adds: “Whilst we know that the actions people say they will take do not always happen in reality, the level of change in people’s stated intentions after seeing the optimised messages was quite striking.
“These results give us reason to believe that communications using these foundational messages can help drive a positive change in the number of mid-working-life savers planning and preparing for retirement and help more people to achieve financial security in later life.”
