‘What would you do if you were in my position?’ It is a question many pensions managers and trustees have been asked by scheme members searching for guidance around pension savings.
It is often hard to respond; they cannot give the member advice because they are not authorised to do so. This contributes to the advice gap.
Workers look to employers for advice
Our research shows employers believe staff are as likely to look to them as to the government for support around pension decision-making.
Not only that, almost half think employees will hold their company responsible if they make poor decisions, research by Populus from February 2015 shows.
This mirrors the views of workers themselves – with as many individuals believing it is their employer’s responsibility as the number that believe it is the government’s, Populus found in September.
Even if a member is given a clear idea of what they should do, they are still on their own in terms of finding suitable options in an increasingly complex post-retirement world
Members expect their employers to give them the support they desperately need, and employers are keen to provide it. At the moment few are clear on what shape that could take.
The Treasury, through the Financial Conduct Authority and its Financial Advice Market Review, is currently calling for input on how financial advice could work better for consumers. This is both timely and necessary.
Understandably trustees and companies have been reluctant in the past to tread anywhere near the ‘advice line’. But in doing so, many have stopped short of pointing members in the direction of solutions likely to be appropriate for them.
Where trustees move closer to that line, results can be very positive. For example, we saw the benefits of this approach with a client who launched a new investment strategy they believed was right for many members.
Following targeted and personalised communications, nearly 20 per cent of the membership actively moved to the new strategy. In this case, using the power of ‘people like you’ examples helped members think about their own circumstances.
Personalisation and personas are two things that should be used more widely in member communications to deliver better outcomes without providing direct advice.
Give guidance early and use power of inertia
Before April 2015, many schemes provided access to an annuity broker shortly before a member was due to retire. But in the post-freedom-and-choice world, the complexity of decision-making for members has increased dramatically.
Trustees and companies must decide what support to give members in the run-up to – and potentially after – retirement, and who pays for this.
Where members pay it will be vital to sell the benefits of the advice to them, rather than purely emphasising the cost. And advice – or at least strong guidance – should start much earlier in the retirement journey, ideally when a member makes the decision on the most suitable glide path to retirement.
The introduction of Pension Wise has created opportunities and challenges. For the first time scheme members have access to free, impartial guidance on their retirement options.
But this will only go so far. Members will not get advice – which many will feel they need. Also, it will not cover individual products.
Even if a member is given a clear idea of what they should do, they are still on their own in terms of finding suitable options in an increasingly complex post-retirement world.
This is where clear advice could, and perhaps should, be offered to members through their pension scheme.
We forget that the support members need at the point of retirement is only a small part of their pension journey.
To help members get a better outcome at retirement, trustees and companies should be engaging with members much sooner to help them understand what it is likely to be. This is the only way they can help manage them to a better place.
Never has the power of inertia been seen more clearly than in the world of DC. Most people in UK DC schemes sit in the default investment strategy, at the default contribution rate and planning to retire at the default retirement age.
Wherever possible, trustees and companies should be harnessing this power of inertia and setting contribution rates and retirement ages that will genuinely help members get to where they want (and need) to be when they retire. This is not advice – this is simply prudent management of members’ retirement outcomes.
Rona Train is a partner and senior consultant at consultancy Hymans Robertson
