Member communications: How much information is too much?

Perhaps a few have gone online, visiting their scheme's website in search of further information upon receiving a letter.

Disengagement from pensions is one of the big problems the industry faces today, says Laurie Edmans, chair of the Trinity Mirror defined contribution plan.  

“I’ve been doing pensions for 50 years now but I very rarely look at the stuff I write,” he says, adding that he would rather watch a football match.

I’ve been doing pensions for 50 years now but I very rarely look at the stuff I write

Laurie Edmans, Trinity Mirror Pension Plan

When even people who work in the field admit some lack of interest, the 'leave it for later' reaction of many employees when confronted with pension communications becomes understandable.

Our psychological aversion to pension information probably has more than one explanation. We may blame a mix of laziness and lack of will to plan ahead for what we will be doing at the end of our active lives.

But aversion is also triggered by the way many pension schemes communicate with their members. The use of jargon, unclear sentences and too much irrelevant information can put people off.

Laura Myers, partner at consultancy LCP, says communication should be simple and consistent. She notes that a lack of consistency in communication has emerged during focus groups organised by the consultancy, as different expressions are used to talk about fees. What some call 'total expense ratio', others label 'annual charges'.

“Scheme members get confused when you don’t use the same language. They may think they have to pay two fees if you are not using the same word,” she says.

Some UK pension funds are making an effort to improve their communications by customising messages to different groups of people and using multi-channel campaigns. 

Ann Flynn, senior DC consultant at Willis Tower Watson, says people in DC schemes have shown different behaviours, ranging from the 'do-it-for-me' group, who are passive when it comes to pension investment, to those who want to be engaged with investment choices. In the middle is a group of people who are slightly more engaged and interested than the first group, she says. They like to have “something that is nice and easy”.

Schemes have made efforts to improve their language over the past 20 years. The winning strategy, according to Flynn, is the adoption of various levels of communications for different groups of people. Simple and clear language should be used for the 'do-it-for-me' group, while more details could progressively be given to the other groups.

The use of tools such as infographics could help people have a better understanding, says Flynn.

Anne Oliver, head of communications at consultancy Aon Hewitt, says technical terms should be avoided or, if they are needed, an explanation must be at hand.

“We want to use a very plain style of language, short sentences, speaking to the individuals as if they were sitting across the table from us,” she says.

Too much information

Another problem is that scheme members are too often overwhelmed by irrelevant information.

LCP’s Myers says: “Typically in the UK members are given loads and loads of information. I think we need to take a step back and think of how we actually communicate. We should do more tailoring and less sending a telephone book of information to them.”

Her advice to pension trustees is to think about a member’s journey through their scheme and establish when to send communications and what to say at different times, rather than bombarding all savers with unwanted information.

But what should and should not be communicated to avoid overwhelming members?

A change to the investment structure or asset allocation has to be communicated, says Flynn, adding that the challenge is how to ensure members understand “why the change has taken place and why it is a good thing”.

However, too much investment detail should not be included, says Edmans.

“I really don’t think they need to know a lot of the detail. People need to know whether they are in a fund which is likely to match or beat inflation, and if their fund is designed to beat inflation then they need to understand the likely volatility of that fund.”

The scheme, which works with consultancy Hymans Robertson, is following three simple principles in its communication strategy: be short, stick to one message and customise it.

“One of our top communication beliefs is ‘less is more’. The more stuff you pile on people the less likely they are to read it,” explains Edmans.

He says one message is better than multiple messages, and “more personal and less glossy is better than generalised and glossy”.

Aon Hewitt’s Oliver says the key questions that must be answered on the contribution side are:

• How much do you pay into the scheme?

• How much does your employer pay?

• Can you pay more to get more out of the employer?

• Do you pay by salary sacrifice?

• If a salary sacrifice arrangement is in place, does the employer give you the national insurance saving?

• And how much tax relief will you get?

Improving communication

The Trinity Mirror pension funds, with combined assets of £1.6bn, issue a newsletter once a year, in both digital and print formats, with investment news for members.

For specific information on the fund’s value and performance, members can access a facility called 'plan viewer' set up by Fidelity Investments, the management company employed by the scheme, via weblinks and a password. However, “the problem is that by and large people don’t use it”, admits Edmans.

Changes such as new investments or fund managers’ briefs are communicated to members in a personalised letter.

Acknowledging the importance of face-to-face interaction, the scheme has been holding open forums alongside its trustee meetings. Edmans says the company no longer holds trustee meetings in its Canary Wharf headquarters, moving them instead across the country so that the trustees meet where members are based.

Yet too few people go to these events, Edmans says. Attendance at a meeting in Newcastle was considered good when 40 or 50 people – of about 200-300 members in the area – turned up, he says, but other meetings were less successful.

“Our biggest frustration is with people simply not asking the questions and not being curious,” he says.

To tackle the issue, Aon Hewitt has set up communication campaigns to encourage employees to pay more into their pension plans because this is one of the main problems their clients are facing.

“We try to demonstrate how easy it is to find an extra £10 a month, which will become a lump sum over 40 years,” by suggesting members give up one coffee a week and put the savings into a pension, says Oliver.

Campaigns are run using the media tools a company can offer – from a video message to posters on a noticeboard.

In addition to this, Oliver says the consultancy may try to personalise the campaign using individual data. For example, as people’s aversion to loss is greater than their desire to make savings, she says a campaign can tell individuals how much they have lost with their lack of action. 

Freedom brings fresh challenges

Encouraging people to decide earlier in their savings journey which investment path they want to follow has become even more important following the introduction of the pension freedoms last year.

“Making sure people end up on the right investment path is the next big challenge for our industry,” says Willis Tower Watson’s Flynn.

It is important to help people throughout their membership of the scheme by reminding them what their options are, she says, adding that the use of interactive tools is key to showing people what their attitude to risk is.

The Association of British Insurers recently launched a consultation and draft guide aimed at simplifying the language used to explain freedom and choice to savers. Consultants say pension funds should draft a similar document.

LCP’s Myers says the pension freedoms have made it imperative that schemes, rather than giving members the percentages of a fund’s asset allocation, should explain what that investment is trying to do.

Cristina Balotelli is a senior reporter at Financial Times publication MandateWire