If you want to engage pension scheme members, members need to see the full retirement picture, warts and all.
A quick Google image search for pensions offers a fascinating glimpse into public consciousness. The eye is greeted with inscrutable graphs, government logos and irrelevant stock imagery.
It chimes with recent government research, which found that attitudes towards pensions were characterised by “detachment, fear, and complacency”.
The government hopes to sharpen the focus on pensions so people will be more engaged, make better decisions and enjoy more comfortable retirements. However, the government hasn’t illustrated how one leads to the other. Better engagement can paint a clearer picture, but not necessarily a brighter one.
The research, based on 60 qualitative interviews with members of workplace pension schemes, broadly concluded that members didn’t engage with their pension because they couldn’t fathom what the information meant for their future. Members felt a lack of ownership. Many were confused about where their money was, how much they had and how much they needed.
One member said:
“Until you actually get that money at retirement, it just doesn’t feel like real money. I guess it goes into a magical pot. Who knows where it goes?”
Give members what they ask for
Much of this can be solved by giving members what they asked for. For example, members wanted information in a visually engaging way. Reams of alienating data is particularly problematic for a generation reared on YouTube. Even Google has been forced to make searching a more visual experience, after its own data indicated that 40% of Generation Z were turning to Instagram and TikTok for answers instead. Members unaccustomed to static information want something pithy and pretty.
Members also wanted charges shown in pounds and pence, rather than percentages. Because figures don’t say much, but money talks. Converting figures into currency gives members something tangible with a value they can understand.
Some members said they’d be more motivated if their pensions matched their principles, namely around ethical investing. Currently, most don’t understand what happens to their money. It’s diverted from their paycheque into something unhelpfully referred to as a ‘pot’, where it’s imagined under lock and key until retirement. However, members who understand their money is invested are far more likely to be enthusiastic about their pension. Images of new schools, hospitals and wind farms trump impenetrable graphs and generic elderly couples walking their dogs on beaches.
A darker picture
However, we can draw from the research that the biggest barrier to engagement is a failure to explain what impact making changes can have on a pension. And this is where the picture gets darker. The rough sketches given on statements not only mean very little in real life but are often viewed with scepticism. “I look to my parents, who worked all their life and don’t have a good retirement,” said one participant.
Those having contributions plucked from their pay have seen the government nudge the retirement age edge upwards and are watching a significant number of over-60s being recalled from retirement because of the cost-of-living crisis. Rising prices have also shifted the goalposts, adding almost 20% to the minimum cost of retirement, according to the Pensions and Lifetime Savings Association.
Members are rightly asking why they should trust that their retirement will look anything like the one teased in a pamphlet, where everyone sips tea on a spotless sofa wearing a Stepford smile.
The government is upping its efforts to close the gap between the security promised by the defined benefit schemes of yesteryear and the uncertainty which many people on defined contribution schemes now face. It recently launched a spate of measures to shore up the fairness and predictability of private defined contribution schemes. Because people are saving less, more needs to be made of the money that’s there. But it won’t be enough.
Alongside the research and the new measures, the government confirmed that auto-enrolment minimum contribution rates would stay where they are. Raising them would be unpalatable as rising costs continue to smother household finances. And yet, by maintaining the status quo, many will be blindly stumbling towards a threadbare retirement. Recent research from Standard Life shows that many zoomers – the colloquial name for people who are part of Generation Z – are overconfident about their pension, which could suggest that auto enrolment provides a false sense of security.
Engagement can be improved, but members can’t retire on engagement. If its purpose is to make it clear that members are unlikely to comfortably retire on minimum contributions either, this picture needs to be painted clearly – warts and all.
This article first appeared in Professional Pensions.
