How to keep on top of an ageing workforce

The research by Aviva found that 9.67m over-50s currently constitute 31 per cent of the UK workforce, and that if the current decline in people aged 16 to 64 defined as 'retired' continues, there will be no retirees in this age bracket by 2029, creating more deferred members. 

Trustees say the best response to longevity risk is to incentivise employers and employees to increase pension contributions, especially through member communications.

Despite this consensus, it can be hard to find practical ways to optimise communications, for financial and legal reasons.

Raising awareness

Trustees reiterate that the biggest problem schemes will face as part of an ageing workforce will be ongoing low contribution levels. The only way to mitigate this issue, they say, will be to make member communications more effective in order to encourage saving.

Roger Cooper, head of trusteeship at professional trustee and consulting group Pi Pension Trustees, notes that as alternative savings vehicles such as mastertrusts and the Lifetime Isa become more commonplace and more future pensioners become eligible for them, trustees will have to adjust to this new landscape.

“The viability of traditional [pension] arrangements will be impacted,” he says, and trustees will have to stay vigilant to keep members properly informed.

Cooper says that as longevity increases, schemes will gather ever more deferred members. As there is less certainty around deferred benefits, increased member engagement will become necessary.

Trustees are responsible for “raising awareness of individuals’ responsibilities” for their own pensions, Cooper says. “This is a tough challenge,” he says, since most people cannot easily afford to save more, and as such, “auto-enrolment isn’t the answer”.

“Trustees recognise people need support, but they don’t have the solutions to hand,” he admits, despite increasing trustee awareness.

Professional trustee Jonathan Reynolds from Capital Cranfield Trustees says: “Crunch time for employers and trustees will come at state retirement age”.

More people will choose to “phase into” retirement, but this will likely also be the period at which they will have the highest disposable income of their lives, making retirement look financially unattractive.

The solution, he says, is to persuade individuals to raise contributions. To do this, employers have to establish safe pension schemes, and trustees have to ensure members have confidence in them.

“There have to be chair statements written for members, not for the regulator”, Reynolds says. Communications have to reassure members that their pension is worth investing in. “We have to do everything in our control to give members confidence.”

He admits that “people have a stark choice to make” between saving more and working longer, especially the young. Employers can help by offering attractive retirement packages. However, Reynolds adds, increasing saving incentives is “an all-round responsibility”.

Trustees have to encourage people to save so that “members can make a positive choice about whether they want to work”. He adds, though, that this campaign should have begun decades ago.

More than a compliance exercise

Communication specialists raise doubts about whether, despite their preoccupation with them, trustees are effectively improving communications.

Daniel Taylor, head of administration services at consultancy Premier Pensions, calls trustees “too passive” in streamlining communications, saying most are concerned with the most basic of compliance and disclosure regulations.

He says trustees focus too much on investment strategies, but points out that “more can be gained or lost through member outcomes than investment return”, so prioritising communication strategies would be wiser.

This includes, he says, “asking members about what methods and type of communication they would prefer… rather than just applying age-based stereotypes”.

To gauge the effectiveness of a communications exercise, he says, look not only at whether contributions subsequently increase, but also whether members begin to look past default investment options for options that suit their lifestyles. 

Anne Oliver, head of communications at consultancy Aon Hewitt, expresses a more positive view of trustees’ initiative-taking, but concedes that “budgets can often be stumbling blocks”.

She recommends focusing on “the ‘must haves’ and making them work harder”, for example by using “a benefit statement to deliver additional messages around paying enough contributions, or investing wisely”. 

Oliver emphasises the benefits of exploiting technology in communications, as big data allow trustees to track member engagement with content, and notes that many of her clients are already making this shift.

An effective exercise, she says, must be relevant, engaging and above all easy, allowing members to interact with their pensions and suggesting small steps to save more, such as skipping an overpriced coffee.

Oliver also points out the need to tailor communications to the new pension freedoms. More trustees are having face-to-face events to talk members through alternative vehicles.

“Some members should consider their own position and think about whether they should reduce their contributions or stop building up pension benefits altogether” as vehicles such as the Lisa emerge, she says.

Oliver also suggests taking advantage of basic psychology. “We… play back to members how much they are losing by not taking up an employer's matching option”, she says, because “we fear loss more than we value gain”.

Meeting challenges

Kirsty Bartlett, partner at law firm Squire Patton Boggs, says she sees many hurdles for both employers and trustees as the working population ages. “There are a number of challenges that trustees should already be addressing but that will intensify” as workers age, she says.

Employers, she says, will find it increasingly difficult to design retirement packages that satisfy both younger and older workers. They must avoid falling into “age discrimination” when imposing retirement age or evaluating turnover.

Employers wanting to promote younger workers should be especially motivated to have a good retirement scheme in place for their oldest workers, she says, but adds that with constrained budgets this is getting harder.

Despite concerns this raises about low employer contributions, Bartlett says, trustees should not have legal powers to increase employer costs.

If trustees are concerned an employer is not being generous enough, they can enlist the Pensions Regulator’s help. Granting trustees more legislative power “would only create unnecessary conflict”, she adds.

“The most [trustees] can do is implement clearer communications,” she says, to inform members and allow them to voluntarily make higher contributions.

But Bartlett warns: “It is a very fine line for trustees between giving members information and giving them financial advice.”