Inertia and engagement both have a place in pension comms

Whether or not to engage with members does not have to be a binary choice. Inertia can help members into pension schemes and guide them through to retirement, panellists at a recent Defined Contribution Investment Forum event said.

At the same time, effective communications can build members’ feelings of trust and positivity in pension, the experts explained.

They don’t need to understand their fund value, they need to understand whether they’re going to achieve their aspirations in retirement, whether they’re going to have the lifestyle that they expect

Richard Butcher, PTL

Iona Bain, founder of the Young Money Blog, believes engagement should start as soon as possible. She said: “When a young employee is enrolled into a workplace pension for the first time, they are making a huge financial commitment that they may not be aware of.”

Ms Bain added: “Yes, there are risks with engaging, but in my opinion the risks, in the long term, are far greater if we don’t engage. There is a huge risk that we end up alienating a generation, whereby they feel they have been misled into saving for something that they did not fully understand.”

US steers clear of engagement

Lew Minsky, president and chief executive officer of the Defined Contribution Institutional Investment Association, was less convinced, pointing to poor outcomes from engagement in the more mature pensions market in the US.

“I would argue that in the States, what we’ve learned is there are some circumstances where [engagement] can be a positive,” Mr Minksy said, but added that in most cases “activating the individual is probably a negative, and where [possible] we’d rather let scheme design and a series of effective defaults control the situation.

“While you want people to understand and feel good about what’s happening, we generally have learned that when they make active decisions, they make the wrong decisions,” he said.

Post-retirement is another matter, however. In the absence of the default retirement products currently under consideration by some UK providers, Minksy and his US colleagues have had to try to engage members and encourage good decisions before they retire.

It is possible to have the best of both worlds, argued Mark Rowlands, director of customer engagement at Nest.

While inertia can help enrol members into pension schemes and default investment solutions ease the pressure of outperforming a professionally managed fund, communications can shape the way people feel about saving.

“We’ve got to think about engagement in a way that makes people feel differently. We need to help people to feel it’s socially okay and it’s normal to save in a pension,” Mr Rowlands said.

Danger of obsolescence

Speaking at the same event, Richard Butcher, chair of the Pensions and Lifetime Savings Association, said the key is for the industry to refocus on what members actually need, rather than what the industry thinks is important.

“At the moment, we’re obsessed with members understanding that they’ve got a fund value. I mean, that’s a completely arbitrary number – it means nothing,” he said. “If somebody sees a number on a bit of paper that says £92,000, is that good? Is that bad? Is it indifferent?

“We’ve got to get them to understand the right things. They don’t need to understand their fund value, they need to understand whether they’re going to achieve their aspirations in retirement, whether they’re going to have the lifestyle that they expect or want to have when they get into retirement,” he continued, adding that the industry is in danger of becoming “obsolete” if it continues with current strategies."