Two workplace guidance steps to avoid member confusion

It is now possible to convert pension savings to spending in one of three ways, or a combination:

• Cash (either a single one-off payment or a series potentially subject to marginal rate tax); 

• Buy an annuity (single or joint life, level or escalated, lifestyle or medically enhanced); 

• Opt for drawdown (which provider? How much can be withdrawn without running out of cash?).

It is also important to factor in what is going through your members’ minds at this time: Are they stopping work altogether? Can they afford to? Do they want to? Will they enjoy retirement? How long will they live (most people underestimate their longevity by around five years)? What income do they need? How will their income needs change through retirement (care costs)? What about other assets?

Members are right to be confused, and reaching out to Pension Wise at the point of retirement will help some members – but for many it is too little, too late.

Pension Wise should be part of the answer, but it is not the complete solution.

The starting point for companies has to be to assume your members will need help.

Pension Wise at the point of retirement will help some members – but for many it is too little, too late

With this freedom comes additional complexity and a heavy burden for trustees to help their members make appropriate decisions for their circumstances.

Through practical experience and academic studies of member behaviour we have learned how to avoid the mistakes of the past and find a way to help members.

One approach that has been proven to be effective is to take a step back and build a formal engagement strategy by adopting the following principles:

1. Setting an objective and delivering this one step at a time

Often communication has failed to engage people because it has been too ambitious in its scope. There is a war for attention, and scientists who study decision-making liken the brain to a computer which, when bombarded with information, is prone to crashing.

2. Executing the strategy a step at a time

Segment the membership into broad, age-based segments:

• Those who should be saving more, which includes those under the age of 50;

• Those who need to start considering their retirement destination, which would include members who are 8-10 years before the notional retirement age;

• Those at the point of converting their savings to spending.

It is important to personalise pensions communication to each individual as members are much less likely to read what they perceive to be junk mail.

Technology enables this and as an example we are currently piloting personalised video benefit statements that last 60 seconds or less.

Simplicity is key and alongside the communication needs to be the means to act. We have to remove all barriers that prevent people engaging and then executing a response.

Far too often the engagement fails because it is just too hard to access a web page or form. Technical pensions language and websites with multiple sign-in levels are not effective.

Finally, consider the desired effect of your communications collateral and how you hope to make it impactful.

World-renowned neurologist Donald Caine provides an interesting insight, commenting: “The essential difference between emotion and reason is that emotion drives actions, while reason leads to conclusions.”

Mark Rowlands is the sales and marketing leader for the Mercer UK DC & savings team