Co-op battles 95% apathy with tiered AE scheme

A consultation run earlier this year only received a 5 per cent response rate, demonstrating a lack of engagement with the scheme, especially among the 40,000 employees eligible for auto-enrolment.

Gary Dewin, head of group pensions at the Co-op, said: "What we discovered early on is actually we do not really know that much about our population.

"We do not even know that much about those people who are currently in a pension scheme, let alone those that are not in any scheme."

Employers and schemes that find out more about how their employee population think about their pension set-up face a better chance of designing one that is suitable for all.

By boosting engagement, this in turn could help members to achieve an appropriate level of retirement income.

The Co-op's engagement project

In 2006, the Co-operative Group had one pension scheme. By 2010, through acquisitions and mergers, it had 10.

[Auto-enrolment] is a huge risk of actually disengaging huge swathes of our employees

Gary Dewin, Co-op

Dewin added: "We had a set of everything – career average, final salary and defined contribution."

At that point the company had 106,000 employees, with 40,000 who would meet auto-enrolment criteria.

The employer closed all its schemes apart from the £6.1bn career-average option and put a new DC scheme alongside it (see box).

Members can pay 4 per cent of their salary into the DC scheme to get a total of 12 per cent including the employer's contribution. Or they can pay 8 per cent and receive a career-average benefit.

"We could build additional tiers in the DC but what we did not want to do was pre-empt what people actually want," said Dewin.

The current arrangement is a "platform" that could be changed in future according to employer and employee needs, he added.

The scheme wrote to 100,000 employees to gauge their views on the new offer, added to bespoke communications and presentations. But only about 5 per cent of those employees responded to that consultation.

Dewin told the 2012 National Association of Pension Funds conference: "That could be because the offer is excellent… but it really struck a chord with me in terms of people's levels of engagement."

The scheme is also concerned auto-enrolment's inertia strategy will alienate those 40,000 who have never chosen to join any of the organisation’s pension schemes.

"We are making people [join] – in essence, that is how they see it," Dewin said. "It is a huge risk of actually disengaging huge swathes of our employees; and dissatisfied employees equal dissatisfied customers."

Boost governance to boost engagement

An April report by consultancy JLT and Cass Business School set out a number of ways for schemes to improve their DC investment governance to drive member engagement and outcomes.

Our experience has been that online is so much stronger these days in terms of getting messages across

Paul Armitage, JLT

These range from salary sacrifice and reducing scheme charges to aiming for an uplift at retirement by exercising the open market option.

Paul Armitage, head of DC pensions at JLT, told delegates the research concluded the case for companies to invest in pension provision was directly related to schemes' ability to engage members.

He added: "It is not new but taking steps like giving members some choice and some levels of personalisation around benefits is a huge step forward in terms of engagement."

For schemes to improve engagement, they could ask themselves whether their communications are simply compliant with auto-enrolment legislation or more focused on engaging members.

"Our experience has been that online is so much stronger these days in terms of getting messages across. There is so much more you can do online," said Armitage.