DC schemes harness apathy to drive up contributions

Schemes are already targeting members with segmented communication by text, email and drop-ins to educate them how increasing or reducing contributions will impact on their retirement income, and how colleagues benefited from raising their saving.

On another, highly effective track, some schemes keep a high matched default contribution which is ensuring a better retirement outcome for members through apathy.

Increased contributions are crucial for these schemes to provide members with an adequate retirement income, as DC schemes are commonly less rewarding than their defined benefit (DB) counterparts.

Segmenting your scheme

Zillah Bingley, head of workforce communication EMEA at Mercer, said schemes have a choice of a variety of communication strategies, which they should preface by segmenting members by demographic, behaviour or knowledge to make following communication worthwhile. 

She said: "Let's take the ones that aren't participating at all. We turn things into a kind of buy one, get one free. So if you contribute 3%, the company will contribute 5%, so you are getting an eight-for-three package."

Any other options such as retirement modellers should only be offered when schemes have done their homework on the kind of media used by those being targeted.

So, for one group of staff, face-to-face meetings and drop-in seminars could be more appropriate, where another group might prefer mobile information using handhelds and tablets.

Targeting communication

Lisa McEneny, communications consultant at Aon Hewitt, said one scheme client had sent varying text messages to eight different segments of the scheme membership.

The messages ask members whether they are interested in increasing their contributions, and provides a link to the their benefits portal.

She said: "The way they are segmented is if they are already paying contributions, to say, we know you are paying contributions, but did you know you could pay more to maximise contributions from the company?"

Another tactic popular with a handful of Aon Hewitt's DC scheme clients is the "someone like me" approach, where members are presented with the statement of a fellow employee who increased their contributions, and the proportion they gained from it.

Video: Learning from members' investment behaviour.

Communication can also be segmented according to the investment behaviour of different parts of the scheme, as explained by DCisions information director Maya Fernandez in the above video (from 03:14).

Using apathy

The British Airways Retirement Plan, the open, defined contribution (DC) part of the airline’s provision, takes advantage of member apathy, rather than relying on their engagement to drive saving.

The scheme, which is administered externally by consultants Towers Watson, brings in all members at the maximum level of contributions, meaning they have to make the conscious decision to lower this.

“The default contribution is the maximum, which is 5%,” said a scheme administrator at Towers Watson. “I think I have only had a couple of people who have asked to [reduce contributions].”

James Colegrave, senior consultant at Towers Watson, said the best route for schemes was to set their default at the highest level, and allow people to trade down.

He said: "Inertia generally means people do nothing. I have one client where they have quite a generous matching facility, but they default at full match, and surprise, surprise 90% of people remain at full match."

Focusing on retirement

The Pensions Regulator has published a response to its discussion paper on improving member outcomes for those with a DC pension.

“We propose to use the six elements as a basis for assessing the quality of a DC scheme, and we expect these elements to be key considerations for anyone offering a DC pension scheme,” said the response.

The six key elements of a good member outcome, in no priority of order:

1. Appropriate contribution decisions;

2. Appropriate investment decisions;

3. Appropriate decumulation decisions;

4. Effective and efficient administration;

5. Protection of assets;

6. Value for money.

The regulator’s governance survey had revealed the proportion of schemes which had never reviewed their retirement process actually increased between 15% and 17%, as did the proportion of those who did not know.

And only 1% of schemes surveyed believed the board “definitely should” do more to effectively manage the scheme’s retirement process.

Another 11% answered “probably should”, and 13% “possibly should”, meaning three quarters of schemes surveyed did not think there were any issues around retirement.

Fiona McDonagh, M&S technical manager and secretary to the DC committee, has called upon schemes to engage with members about their retirement date from the moment they enter the scheme.