By Lauren Peacock, Campaign Manager – Pensions Industry, ShareAction
Thanks to automatic enrolment, more millennials in the UK are now saving for retirement.
This is largely a consequence of behavioural economics – when people have to opt-out of pension saving rather than opting-in, more end up saving.
But they’re not saving enough. Minimum contribution levels of 8% see people under-saving, especially women. And, with less than 1% of people switching their pensions to an ethical fund option – leaving them in default funds that invest in oil, tobacco and arms – members’ savings often don’t have a positive impact.
Yet research from DFID shows that 56% of savers would want to switch to a sustainable option.
So what’s going wrong?
Pensions often feel distant for savers, slipping down the priority list, and with many having little say over which provider their pension is with – with employers making this choice for them – they feel even less engaged.
It’s time to start engaging savers on their pensions, to both support them achieve good retirement outcomes and build a world they want to live in.
Member engagement is a hot topic – and crucial if we are to avoid a pension crisis for future generations – and on 27th November, we welcomed a diverse audience from across the pension industry to share what we consider best practice.
Our passionate panellists shared their experience of overcoming barriers to engaging and encouraged debate amongst the audience.
We identified five solutions to member engagement:
1) Make it emotional
Franklin Templeton’s recent research demonstrates a clear misalignment between how young people feel about responsible investment and what their pension currently delivers in this area. Responsible investment is an emotional issue for many younger DC (Defined Contribution) savers and making the link between their pension savings and their ethical values can help increase engagement with workplace pensions.
Pension freedoms are complicated, and we must prepare people for that and communicate early on, in a way which engages them. The research estimates that an additional £1.2 billion of employee contributions could be invested annually by the “DC generation” if responsible investment was incorporated into their pension communications.
2) Make it tangible
Quietroom are the experts in using language effectively. Their work shows that there are easy things that schemes can do to move away from jargon and talk like a human. And the more schemes talk like real humans, the more they’ll be able to invite their members to join in the conversation.
Their video of the public’s reactions to responsible investment shows that people do care once they are aware. There’s just lots more work to be done to help people understand that their money is invested in the first place.
The audience raised concerns about pension fraud still being a risk to their members. As an industry we need to ensure that members know who their provider is and have some brand awareness. That way if members are approached by scams, they will know who they can go to. If they don’t know who their pension provide is and what is realistic, scams become more attractive.
3) Communicate in members’ own language
Tesco have taken the bold step to really understand what their membership cares about by simply asking them.
Member savings in a defined contribution scheme need good returns to prepare them for retirement. Using responsible investment to improve risk-adjusted returns is a key part of this.
However, providers also have to be honest – particularly where they cannot make promises to avoid sectors entirely. By taking savers on a journey, and building up their knowledge, they can have a much more positive impact.
4) Improve members’ experience of our products
People need to make decisions but pension providers often make it too hard.
Smart Pension is passionate about improving its members’ experience of its products. Creating small tangible steps and actions for people, to make the complex simple.
Putting pensions alongside current accounts in an app is an example of making pensions visible and real for people. Pension providers don’t need people to engage all the time but they do need intense short periods of engagement. Members need to have the information to do this and to make good decisions.
The biggest misconception is that innovation in the pensions industry means a total overhaul. Research shows that innovation is more likely to be adopted when the innovation is 20% new and 80% familiar. They believe that we can learn from challenger banks, who have marginally improved their propositions from traditional banks and yet they have drastically increased consumers engagement.
5) Embrace feedback
PensionBee use consumer centric design and feedback to make their offering as engaging as possible. Technology is a key aspect of this. Negative feedback can be painful but offers valuable lessons, businesses should build strong feedback loops into their culture, and that customers like feeling heard.
Their digital retirement planner allows customers to adjust their options in live time giving customers up to date information they can take action on.
PensionBee are evidence that anyone can be pension savvy if customers are given the support they need. If members and customers get in touch that should be celebrated.
As an industry, the pensions sector needs to improve its systems and provide more simple information so members can answer some questions themselves.
At ShareAction we believe that pensions show be diverse and inclusive at all levels.
Pension savings are hugely influential – they make nearly half of all investments in the UK, and are building the world around us.
Used in the right way, they will be a powerful tool and can have a real, positive impact. Central to this will be a movement of engaged savers, ready and willing to act. It isn’t possible for schemes to have multiple funds on offer for members but we could have five or so which are clear in their purpose and how they invest.
We need to tell a new story on pensions.
ShareAction will be hosting more events and workshops in the future. Please get involved and join the debate.