Engaging scheme members is vital if we are to close the savings gap, says Redington's Lydia Fearn.
While this is a positive step, as mentioned in our Age of Responsibility Report, long-term savings levels should be much higher at around 15 per cent of income.
Inertia has been a powerful tool so far, but it is not going to help us bridge that 10 per cent savings gap
Increased active communication and engagement are vital if we are going to convince people to not only stay in as contributions ratchet up, but to see the true value in saving more in order to start to bridge that 10 per cent gap between where they are now and where we think they need to be.
An important theme is communication. The vast majority of member communication is too complex and legalistic.
The industry is failing to create an emotional connection with members. We need to make this more personal and visual, so that we are not just informing people about their pensions, but exciting them too.
There is clear evidence that members are interested in the impact their portfolio has on the world they live in.
A recent survey of investors by Wells Fargo Asset Management showed that not only did social impact investments have broad-based appeal, but 34 per cent of respondents said an option for defined contribution taking into account environmental, social and governance factors would make them “feel more favourable towards their employer”.
This is a clear avenue through which to build engagement and one we are already seeing being used by industry disruptors such as robo advisers.
One example is wealth manager Moola, which launched a series of ethical portfolios due to the demand and interest they were seeing from customers. This begs the question, what are the mainstay DC pension providers doing in this space?
Ever improving data mean it is increasingly possible to inform people about how their pension aligns to their individual and employer values.
By communicating this and creating a real-world connection, we are not only making pensions more tangible, but providing an additional motivation for increased contributions.
Inertia has been a powerful tool so far and will continue to drive success. But it is not going to help us bridge that 10 per cent gap, and so we need to be more ambitious about creating that emotional and, dare I say it, exciting connection with members if we are going to see true engagement and support people in achieving their retirement goals.
Lydia Fearn is head of defined contribution and financial wellbeing at consultancy Redington
