Why do savers continue to misunderstand their pensions?

One-third of the UK population, meanwhile, does not know that the government contributes tax relief to their pensions, while 38 per cent of defined contribution scheme members aged 50-65 are unaware of the tax-free pension lump sum. 

Research by Hymans Robertson reveals that 32 per cent of savers believe, incorrectly, that they can withdraw their entire pension pot without paying tax.

Now is a good time for trustees and employers to remind members of the ESG and climate change strategies that the pension scheme has

Penny Cogher, Irwin Mitchell

Acronyms are a problem

It would seem that acronyms form part of the problem. Recent Aegon research revealed that three-quarters of the UK population (74 per cent) could not decipher a single pension acronym. 

This evidence shows that the pensions industry and the government are not getting key messages across. Some master trusts and large providers have told regulators that they would like to do more to support consumers, but are concerned about straying into regulated or unsolicited marketing activity.

Legal requirements can hamper pensions literature. Quietroom director Simon Grover argues that the “typical pension communication has an undergraduate or graduate reading age”. 

“That might not sound so bad, but that immediately means over half the population will struggle to understand it. And even those who can understand could find it hard going, especially if they are busy, stressed, tired or just not that interested,” he says.

“Make it simple, then simplify it again,” says Kirsty Moffat, head of DC engagement at Hymans Robertson.

“Be brief; use pictures; make use of digital tools if this is possible.”

One major fault is the sheer amount of stereotyping in pension communications, according to Punter Southall Aspire chief commercial officer Alan Morahan, who points out that the typical pension advertising or brochure contains:

• photos of white retired couples joyfully strolling along the beach, complete with obligatory pet dog;

• middle-class signifiers, ranging from iPads and parquet floors to Farrow and Ball statement walls and bifold doors;

• families laughing in picturesque fashion on couches;

• “pretty people” performing generic wellbeing activities like drinking from a water bottle;

• a “silver fox” running out of the sea with a surfboard.

Top tips for better comms

Experts believe that the industry’s aim should be to get people at least as emotionally engaged with their pension as they are with their mortgage or savings. 

Moffat warns: “Now is a time where members have less disposable income, given increases in mortgages, food and energy prices without salaries keeping up (in real terms) so the messaging must be drafted with care and attention to members’ circumstances.”

She adds: “It very much depends on where members work – if on shop floors, without access to work computers/emails, face to face is still important.”

The timing of communications can also be critical.

Irwin Mitchell pensions partner Penny Cogher says: “When individuals are preoccupied and have less free time, they may not be receptive to this communication.

“We’re in the middle of COP27, so now is a good time for trustees and employers to remind them of the ESG and climate change strategies that the pension scheme has.” She adds that this approach is likely to achieve the optimal level of engagement.

Aegon head of pensions Kate Smith says that it was important to “be timely, make it personalised and have one clear call to action”. 

“Clear, straightforward and relevant language at the right time is one of the most powerful tools we have to better connect with our audiences, helping to make pensions less intimidating, boosting engagement and giving people the tools they need to make active decisions about their future,” she adds.

Communications have to be compatible with technology too, including smartphones, suggests Ged Brumby, senior director and head of pensions at Edelman Smithfield.

“If the Covid pandemic has done anything it has created a new generation of silver-surfers,” he says. 

“According to Statcounter, in 2016 less than 50 per cent of those aged 55 and over owned a smartphone, which rose to 83 per cent five years later in 2021.” 

Websites are in the dark ages

Investment in website infrastructure would also help to engage savers. 

Grover comments: “The annual statement might have improved, but the portal looks like it was built in 1998. This has always been a problem but it’s even more pressing now because everyone has a pension, everyone is an investor, and everyone is being expected to make life-changing decisions that they are not qualified to make.”

The placement of content on websites and the concept of “eye-tracking” are crucial, experts say. This ensures that the most relevant content is placed where a saver’s attention is first drawn.

“Is the login easy and repeatable?” asks Grover, who adds that he rarely looks at one of his financial services providers’ websites as it asks for three-stage authentication, prompting him to ask for “expensive paper instead”.

“Measure everything,” he continues, including “the number of  visits to your website, the number of people who check benefit statements, the age of the people who log in, and the number of people who use your retirement modeller”.

“Finally, make sure someone is in charge of keeping the website up to date,” he says, adding that it is important that everyone in an organisation knows who holds this responsibility. 

The pensions industry is clearly challenging for savers to understand, but other sectors show a way forward.

“We can look at modern banks and insurers to see what is possible in finance,” Grover concludes. 

“And we can look at how Netflix, Amazon, Google and Uber make complex systems personalised, quick, intuitive and simple, so people can get and find what they want.”