From the blog: Consumer group Which? recently questioned whether – following the pension reforms – it is still appropriate for workplace customers to remain in default strategies targeted at annuities.
As ever there is no black and white answer, but the question highlights a growing challenge facing providers of workplace schemes.
Pension default strategies are evolving rapidly as customer behaviour and investment patterns adapt to the new retirement landscape.
But the question highlights a growing challenge facing providers of workplace schemes.
Pension default strategies are evolving rapidly as customer behaviour and investment patterns adapt to the new retirement landscape. But as providers focus on designing strategies for new members, how can they best serve customers in existing default solutions?
What should providers do if members don’t respond? Should they leave them in their existing solution or move them to the updated one?
For providers, it is going to be increasingly important that new default solutions are futureproofed so when changes are made, they can be applied to both newly enrolled members and existing employees.
Communicating default changes will also be critical to find out whether existing customers want to switch. As with all member communications, the messaging needs to be clear and concise to help members fully understand how the changes impact them.
But given the typical level of engagement among most defined contribution members, and the experience of auto-enrolment, the response rate is unlikely to be high, and herein lies the challenge. What should providers do if members don’t respond? Should they leave them in their existing solution or move them to the updated one?
For me, the key question is: What would members expect us to do? In this case, I think most customers would typically expect providers to move them to the new and improved plan unless they indicate to the contrary.
Of course, there will be some members who want to remain invested in the original default, but this just makes it even more important that the communications on default changes are well-written and encourage a response from these individuals.
The capacity for providers to make a change through ‘negative affirmation’ is dependent on the terms and conditions of the scheme and whether they are permitted to make the change without member consent.
Some providers and schemes already have this ability. Others will need to review their terms and conditions so they can automatically move members into new defaults, unless customers indicate otherwise.
Martin Palmer is head of corporate funds propositions at insurer Zurich UK Life
