Pensions are changing. But what can they do to serve the real needs of real people?
Pensions are working great – in theory
The pensions industry works really well for one of its members.
That member has a long career of employment in a steady job, with one employer. They have a partner, a home, and not much to worry about. They contribute a lot more than the auto enrolment minimum (or their employer does). They’re not tempted by get-rich-quick scams and they make sensible, objective decisions about money. They seek out information about their pension, understand it, trust their provider, and feel confident about the future. They know when they want to retire and have a clear view of what their retirement years will look like.
Whether or not this person actually exists isn’t really the point. What we know is that at least 99.9% of people do not fit this mould.
But pensions are not working for real people
We saw this in real life at our Pensions 2040 conference, which we co-hosted with PwC. We brought 5 ordinary people on to the stage, aged 23 to 68, and asked them about their financial lives, their hopes for the future, and their attitude to pensions.
Not one of them matched the standard profile. Our pension industry audience was dismayed to hear the evidence of how the system was letting them down.
- A 23-year-old campaigner has strong instincts to save but doesn’t know how to log in. She wants some guidance about paying in more, but can’t find it. She worries about security, and where her pension money would be invested. She wants an app and a helping hand.
- An ex-footballer contributed while he was employed but never understood it. Now he runs his own company and saves nothing, and doesn’t know where to turn. He knows many of his peers have no pension savings.
- A mid-career professional is on a decent salary, but has used up a lot of “luck, money and effort” to support his partner’s finances, consolidate old pots, and ultimately pay for financial advice to fill the gaps. He’s keen to phase out of work gently, but assumes the State Pension will disappear.
- A woman with multiple strings to her bow has hit minimum pension age but wants to keep working indefinitely. She worries that her pension pot is a third the size of her husband’s, due to the gender pay gap and the difficulties of saving while self-employed.
- And a long-retired policeman, now 68, is grateful for the simplicity and lack of choice in his DB pension, but was shocked by how the rules changed for his colleagues – paying in more for longer, and getting less.
These are people looking for help from the system, but not feeling like they’re getting it. None of them are even close to fitting the industry ideal of a switched-on, confident DC saver.
Pensions are getting even less linear
Other speakers at the event painted a picture of even more variation in the near future. More career changes, more self-employment, more mobility, more non-linear paths. Futurist Tracey Follows framed it as moving from an institutional world to a networked one.
What this suggests is that the pensions industry needs to stop trying to get people to take an interest in how it all works and what the ideal journey is. Instead it needs to use the data and tools we already have to provide a much more personalised experience, that engages with people on their own individual terms.
We need to close the gap between the education the industry thinks it’s providing and the experience members are actually having.
How future pensions could be better pensions
There’s no lack of information or educational materials. We don’t need to create more. Instead, we need to work on the entry point – how we connect people to it.
Areas to explore include:
- Changing the channel and format, not just the words. A 23-year-old needs the message presented differently, not a different message. Use short videos and interactive tools alongside written comms. Match the format to how each group already learns.
- Trigger comms around real life events. Send communications when something changes in a member’s life. A first mortgage, a new baby, or parental leave are good moments. People pay attention when the message links to their own situation.
- Talk about your future self rather than your pension. People lose interest at the word ‘pension’. Ask what their future life looks like instead. Then show how their money makes that happen.
- Use pounds and pence, not percentages. Most members cannot process percentages or compound interest. Show charges and growth in pounds. Start from the basics and assume low financial literacy.
- Make key information unavoidable, not just available. Much of the transparency people say they want already exists. They just cannot find it. Put the important facts in front of members so they cannot miss them.
- Break everything into bite-size actions. People will not spend a weekend on this. Give them one small thing to do at a time. For example, prompt them to name a beneficiary or check their contribution.
