Where is the pensions ice bucket challenge?

Default contribution rates for automatically enrolled employees are often set at the statutory minimum, currently 2 per cent, of which at least 1 per cent must be paid by the employer.

This will rise to 5 per cent with a 2 per cent employer contribution in April 2018, and then again to 8 per cent with a 3 per cent employer contribution from April 2019.

We need to work harder to get people interested in taking responsibility for their own future

The problem is that pension scheme members may assume these default rates are enough to secure a good retirement, given that they are set by legislation. But if their contributions do not increase they are unlikely to have a sufficient level of income replacement.

Engagement can complement structural changes

So what can be done to improve outcomes for DC savers? Structural changes could be made, for example increasing the auto-enrolment contribution rates, and even making contributions compulsory if opt-out rates increase.

Employers can also make it easy for people to save more, with automated increases built in to contribution rates when the member receives a pay rise or bonus.

We can also try to improve member engagement. Research into the most effective types of pension communication has made a few things very clear.

Messages that are negative, and try to frighten savers by confronting them with the dire consequences of not planning ahead, do not work.

Digital pension platforms make it much easier to deliver personalised nudge messaging, and face-to-face presentations still have a big impact.

New tactics needed

Personally, I don’t believe that disclosing technical information about scheme charges and transactions costs – however worthy the objective – will improve engagement.

It might even perpetuate the myth that pensions are difficult. After all, information is really only useful if it can be acted upon.

Other than to opt out, what options do pension scheme members have if they don’t like what they read about the costs of their employer’s scheme?

Engagement is a two-way street. So while employers and pension providers can meet their side of the bargain, pension scheme members have to join in.

Many individuals are not in the savings habit at all, so saving for retirement is very low down their list of priorities.

Telling these scheme members they need to contribute more than 20 per cent of their salary to achieve a decent pension is unlikely to be successful. A study by the Money Advice Service found that more than 16m people in the UK have savings of less than £100.

We need to work harder to get people interested in taking responsibility for their own future, to take ownership of their savings and pension and to save as and when they can.

Designing viral pensions communications

Here social media might be a force for good; imagine if influential YouTubers were to vlog about good savings behaviour until it became the norm.

Perhaps we could create the savings equivalent of the ALS ice bucket challenge; a campaign that uses the same viral marketing techniques to spread the message.

We need to send out the message that smart people do three things:

• They know what they are spending their money on and make sure they are getting the best deals.

• They have an emergency savings equivalent to at least three times their monthly outgoings.

• They add to their pension as and when they can, whether by odd lump sums, or by increasing regular contributions. Even a little can become a lot if you start early enough.

The subtext of these messages should be that DC pensions are quite simple. We are too fond of perpetuating the myth that pensions are complicated.

With a DC plan you put money in, so does your employer and so does the taxman. You grow your pot and when you retire you have a choice about how you take the money.

Let me go and find my bucket.

Debbie Falvey is DC proposition leader at Aon Employee Benefits