Fidelity's Rob Fisher explains the three steps for bolder pensions communication that can be learned from behavioural psychology, in the latest edition of Technical view.
Put simply, it can help explain why people in all walks of life tend to make decisions in highly predictable, repeatable ways.
Without realising it, most of us deploy what is known as System 1 thinking – making most of our decisions based on instinct and gut feeling. We are largely influenced by our social environment and peers.
This is especially true in finance – it appears complex and understood only by a few people 'in the know'. Very few people ever adopt a rational, logical and evidence-based thought process, known as System 2 thinking, even when making key life decisions.
Given this start point, what can employers do to boost employee engagement and interest in pensions?
1. Be simple
The starting point should be the desired outcome – trying to prevent employees from simply switching off whenever the very topic of pensions and retirement comes up. So my advice to employers is always the same: keep things simple.
Indeed, since one of the biggest reasons for the lack of employee engagement in pensions is complexity, I would go as far as to say that being bold in the pensions context is overwhelmingly about being simple.
Employer and pension plan communication should be straightforward, avoiding the kind of technical jargon that puts most normal people to sleep.
It is possibly a legacy of the defined benefit days that some providers, trustees and employers seem to feel obliged to pack in as much detailed information as they can in every communication.
Evidence suggests, however, that most members are just not interested; the vast majority are certainly not investment experts. Communications have to be designed in that context.
2. Be honest
Although simplicity is critical, another key requirement of communication is honesty.
By this I mean a sense of conveying those things that will really matter to employees in the long run. In particular, members need to understand that in the defined contribution world they are the ones in control, which necessitates them taking on responsibility for themselves. We must be bolder and spell this out.
How can employers help their people cope with this new reality? By encouraging employees to remain in their scheme after auto-enrolment, and by focusing on the basic default structures. I personally believe in a pension plan offering just one, well-designed lifestyle investment option, not a choice of lifestyle funds that will confuse people.
Communications should focus on explaining that core fund option and its merits to the majority of the workforce, rather than responding too much to the agenda of a small minority who will never self select.
One particularly important truth which needs to be communicated is that most people will simply not achieve their retirement goals unless they take a bit of risk with their investments today.
Essentially, in most cases this will mean having a higher allocation to equities and other risk assets, not just saving into cash.
Another revolves around realism as to the level of contributions likely to be needed to achieve desired retirement lifestyles. Employers with matching schemes can certainly influence behaviour positively in this regard.
3. Be proactive
A third way in which communication can be more bold is by being more proactive in terms of timing.
For example, communication about retirement should not only be sent out one or two years ahead of retirement age, but 10 or even 15 years earlier so that members can make up time.
The use of key birthdays to trigger communications is slowly gaining traction – this helps consumers to relate messaging about saving to their busy lives, and research shows this sort of approach does resonate with people.
And what of social media like Facebook and Twitter, or the rapidly evolving use of mobile devices? Surely these offer the real opportunity to be bold? Maybe they do. But let us not get too carried away when it comes to pensions.
Any new means of delivering communication in our world will fail if the messaging, the content itself, is not effective. And for me, effectiveness – boldness – requires a focus on the three key ingredients: simplicity, honesty and proactivity.
Rob Fisher is head of marketing for DC and workplace savings at Fidelity Worldwide Investment
