Breaking the habit: Can life events make people more engaged with pensions?

Engagement is still a major stumbling block in pension saving, but in July last year, a concept long known to psychologists entered the pensions sphere. The Pensions Policy Institute published a report that looked at the idea that people could be more receptive to teaching during big life changes.

If you nudge people without support, the outcome can be bad

Daniela Silcock, Pensions Policy Institute

These include starting university or a first job, buying a house, or getting married. Young adults are most likely to experience such moments, the paper said.

More recently, mastertrust Nest, Maastricht University and Dutch thinktank Netspar conducted a survey on the topic. However, the report authors found the responses on whether life events make people think about their finances are mixed. They stress that several hurdles need to be overcome to use such events for pensions communications.

In fact, in some cases life events could even have a negative effect on ‘teachability’ as the change introduces stress to people’s lives, for example when a child arrives. Other events, including marriage, were simply not associated with thinking about future finances.

“To make the next step towards successfully using life events for pension communication, more research is required,” the paper concludes.

Behavioural intervention ‘useful but not a panacea’

While the jury is still out on the merits of using life events for upping engagement, most seem to agree that there is room for improvement.

PPI head of policy research Daniela Silcock says pensions communication is still quite basic.

“If you look at reality, a lot of communication is based on letter writing, and that’s difficult to do in a way that reaches a lot of people,” she notes.

While she highlights the power of social norms, and how these can be used to nudge people into certain behaviours, she also stresses the limits of nudge theory.

“It’s very trendy right now to think we can fix everything with behavioural intervention,” she says, but: “It’s important to understand that they are a useful tool but not a panacea, and can be dangerous. If you nudge people without support, the outcome can be bad.”

The PPI’s policy input was taken on board by the Pensions and Lifetime Savings Association, which in its ‘Hitting the Target’ consultation asked the industry to identify the most effective ‘teachable moments’.

Still, its EU, engagement and regulation policy lead James Walsh finds it is early days to say with confidence that the teachable moments theory works.

He suggests people should be subject to a regular financial review, which could be linked to changes in their circumstances.

Marked down for comms

The teachable moments idea can work, says Chris Wagstaff, head of pensions and investment education at Columbia Threadneedle Investments, but stresses that timing needs to be spot on. Humans are creatures of habit, he notes.

“The evidence is that it’s very difficult… to teach people later in life what are quite deeply ingrained behaviours,” he says.

The only way to make them rethink their usual behaviour is if they are given information at precisely the right moment. He says this is best done online, through decision trees or similar tools.

“It’s at that stage that the appropriate information will flash up on the screen. It needs to be simple, accessible, timely,” says Wagstaff.

But while he believes behavioural interventions can work well in the accumulation phase, this approach is less promising for decumulation decisions.

“As people get older they are more inclined to take decisions based on gut feel,” he says. “They tend not to take advice very well, and tend to shy away from technologies.”

So what should you do?

With little evidence of the impact of using life events to impart pensions nudges, what can those working for schemes do to improve saving levels?

Neil McPherson, managing director of professional trustee company Capital Cranfield, says for reaching scheme members it is not just timing that matters; the medium also has to be adjusted to the needs and habits of different scheme populations.

You can get their attention, but for them to take action you have to make it easy

Karen Partridge, AHC

But he echoes Silcock’s views on using the power of social norms, citing peers as big influencers, particularly for young people.

“They’re not going to do it in isolation. They’re much more likely to do it if they discuss it at the company, talk about it at the workplace,” says McPherson.

Giles Payne, a client director at Capital Cranfield, says one of his schemes is looking at video benefit statements. Another has chosen to use regular bullet point information, the idea being that if members are given “a number of bite-sized snippets on a regular basis it becomes less worrying”.

A third approach is the creation of focus groups, whose members influence the workforce and spread the news, and can give information when asked about pensions. This approach, used at factory sites, is the most successful, finds Payne.

Create ‘a big red button’

Karen Partridge, head of client services UK and Australia at communications specialists AHC, says she thinks people can be influenced if spoken to at the right time.

However, not all schemes or even employers have sufficient data to indicate that a life change is happening for a member.

And even where it is available “it’s not always easy to define appropriate intervention points, because it’s more about people’s point of realisation”, says Partridge.

The key to reaching people is making it easy to follow up with action.

“You can get their attention, but for them to take action you have to make it easy,” she says.

For example, she adds, members could be given a simple way to trigger a process whereby they increase their pension contributions with the next pay rise.