The Babcock International Group Pension Scheme is moving its communications online in an attempt to cut costs, boost efficiency and better reflect the preferences of members.
In today’s world the case for paperless communication makes environmental and business sense, and many schemes have already made the switch – including the Shell Contributory Pension Fund. But experts warn that such a move requires considerable investment in an online service.
Timeliness and efficiency drive the switch
Trustees of the £1.18bn Babcock scheme plan to allow members who wish to continue receiving paper communications to do so, by sending a letter or calling and asking to ‘opt out’ of the switch.
If only one page is relevant to me then just send me one page
Rhys Williams, Quietroom
Babcock International said that while it expects the move to deliver significant savings, cost was a secondary driver for the decision.
“There will be cost reductions from electronic communications, but more important from a trustee point of view though will be the ability to create timely, efficient communications that can be emailed to members or placed on the scheme website,” a spokesperson said.
To achieve this, the scheme asked members to provide their email addresses, something the trustees said was done by the “vast majority” of members who have responded so far.
Engage with members nearing retirement
The scheme will continue to ask members to provide email addresses or opt in to paper communications in subsequent newsletters to ensure satisfactory coverage, and is required by disclosure regulations to do so at least three times.
This reduces the likelihood that members who are not comfortable with receiving digital communications are caught out by the changes.
And as Rhys Williams, strategy director at communications specialist Quietroom, pointed out, this cohort of members is already a very small one.
“The penetration of technology is... such now that it’s very unusual to find people who aren’t online,” he said.
While schemes should always allow members to choose their form of communication, Williams argued that innovative online information is better suited to the current generation of retirees and near-retirees, who are for the most part technologically literate.
“There’s a growing feeling across the pension schemes we’re working with that [online] also delivers a better experience,” said Williams, advocating communications that can be tailored individually, delivering further cost savings.
“An awful lot of money is wasted with saying everything to everyone,” he continued. “If only one page is relevant to me then just send me one page.”
Online-friendly content is key
The Babcock scheme also confirmed that the content being delivered to members would change to reflect the new delivery method.
“There will naturally be an evolvement from static communications to interactive newsletters and links to informative sites not hosted by the trustee. This is just the start of the process, but there will be developments over the next few years,” the spokesperson said.
This approach was welcomed by Alan Pickering, chairman of professional trustee company Bestrustees, who noted the importance of not seeing online communications as an excuse to let standards slip.
“It’s got to be designed with online in mind and it’s got to be designed from a member-centric basis. There is a real danger that when you move online you just do a ‘brain dump’ expecting the recipient to interpret,” he said.
Pickering said that schemes have tended to focus their online migration efforts so far on payslips, but that the pace of digitisation varies from scheme to scheme.
Time to trim the hedge
In a separate move, the Babcock scheme also reduced its commitment to matching and low-risk assets, to 73.9 per cent in 2016 from a relatively high level of 80.1 per cent in 2015.
Despite persistent ultra-low interest rates, few schemes are now prepared to bet wholesale on interest rates rising, with theories of mean reversion having been proved largely wrong over recent years.
Shell becomes latest scheme to push electronic comms
The Shell Contributory Pension Fund has begun requesting email addresses from members as it takes the first step towards electronic communication, the latest in a long line of schemes to do so.
But Sarah Leslie, head of fiduciary management for the UK and Ireland at Russell Investments, said the scheme’s past hedging trades might well explain its unusual move.
Babcock made headlines in the late 2000s as an early adopter of longevity swaps and extensive liability hedging, meaning its funding position would have stayed stable despite rate fluctuations.
“Given where rates are at the moment, if you’ve been well hedged it’s about thinking about the risk that comes from that proportion of your assets,” said Leslie, whose team has now begun to focus on mitigating clients’ exposure to inflation.
“What you may want to do is increase your risk if you think the reward is significantly skewed to one side,” she said, adding that this trade is a luxury that less-hedged schemes can not afford.
