On the go: Almost half of savers do not know they can choose how much money they pay into their pensions, while a third misunderstand the purpose of auto-enrolment minimum caps, a new report has revealed.
The study, carried out by Nest in conjunction with Invesco, looks at the role language can play in helping pension scheme members contribute the right amounts to their defined contribution pots.
It found that simple changes in the words used to communicate with members could have a significant role to play in addressing a number of important misconceptions held by members about their DC savings.
Besides the 40 per cent who do not know they can choose their contribution rates and the 33 per cent who believe auto-enrolment minimum contributions are a recommended rate, the study also found that 52 per cent were unaware of government tax relief on their contributions and 33 per cent did not know their employer also pays into their pot.
Ninety-one per cent of respondents reported having a positive view about their pension plans, but 77 per cent said they had never been told to rethink how much they paid into their pension, and 16 per cent of employees admitted never having checked their pension balance.
To counter these misconceptions, the report recommended a “four Ps” approach to engaging with those whom it calls “generation default”.
Communication with members should be “positive’, because messaging is more effective when the statement posed is what a member can get if they take action, as opposed to what they lose out on if they do not.
It should also be “plausible”, with the information presented credibly; it should be “plain spoken” with an emphasis on everyday measures like pounds and pence rather than percentage figures; and it should be “personal” and addressed to the member in the first person where possible, the report stated.
According to Jo Phillips, director of research and innovation at Nest Insight: “Very few people increase their contributions over the minimum rates, and there’s a concern that workers see them as recommended amounts they should be saving.
“While not everyone needs to save more, and indeed for some people it may not be the right option now due to short-term money pressures or costly debts to manage, it’s clear that many people will need to save more than the minimum amount if they’re to achieve financial security in retirement. This is especially true of those who have started saving later in life,” she said.
Ms Philips argued that, though better use of language may not “change the actions of millions of people overnight”, the report’s findings nonetheless suggest that simple changes “can make a real difference by brushing aside much of the clutter and confusion that’s stopping people [from] taking retirement into their own hands and saving the amount that’s right for them”.
“When combined with behavioural interventions, they could prove powerful levers for change,” she added.
