Workplace pensions are a brilliant benefit, so why don’t people value them or make the most of them?
People don’t understand the basics
Pensions offer several benefits that are frequently forgotten but make a compelling case for saving:
- Employer contributions – you not only miss out on these if you opt out of your workplace scheme but also if you fail to take up any contribution matching that your employer offers. This is, as they say, free money. It’s surprising how often schemes underplay this.
- Tax savings – tax savings are less obvious but also important because you lose that extra money if you don’t save into your pension. Again, expressed as free money, this can be made to sound attractive.
- Compound growth – the magic of compound growth is hard to explain but can be brought to life by a comparison (like this one about a forest). You don’t have to call it by name, but you do need to show its magical powers.
People lack confidence in pensions
The complexity of pension plans can significantly impact people’s willingness to invest in them. If you’re asking people to put aside (or “give up”) money now for some future benefit, they need one thing to convince them: confidence. If they are not confident in the process they are getting into, they will shy away or at least not get properly engaged. Simpler communications are more likely to build confidence, according to the government. Though a common mistake for pension communications is to try and explain all the complexity instead of picking the bits that are important and interesting.
Employers need to push the plus side
Employers play a crucial role because they already have a relationship with the employee. It’s easier for them to provide face-to-face time with members to show that fellow employees are all involved and to frame pension saving as part and parcel of working life. It’s always going to be more difficult for the scheme itself – faceless and distant – to get that kind of access.
Pensions are more complex than other financial products
An oddity of pensions is that they are at heart incredibly simple – so simple they can be explained in a short video by a spider.
Build up money now so that you have a better life when you’re older. Most people understand that saving is a good idea. Research shows that most people want to save – even without the free money bit. People take out all kinds of insurance even though they may never claim on it. Mortgages and loans are like savings, but in reverse. They’re easier to love because you get the benefit first then pay later. A cynic might think that our industry has made all these things complicated so that people feel they have to rely on (and pay) us experts to provide the products.
People don’t get educated about pensions
We need to warm young jobseekers up to the wonder of workplace pensions, rather than leaving them to find out for themselves – like Quietroom did recently with a bunch of 16-year-olds.
I don’t see the point of educating young children about pensions. It’s not relevant to them. It’s like most maths at school (and all chemistry) – not useful. But once you’re old enough to get a job, you should get some education about the financial services that come with that, including the incredible news of all this extra pay you’re getting for later in life.
People don’t want details about pensions
Nobody wants to learn about your pension scheme. They want to learn about their pension. Or rather, their money and whether they’re saving enough for when they might need it. If we can explain that to people, they’ll listen. Yes, it’s personalisation and segmentation. Supermarkets and streaming services have been doing it for years with a lot less information about their customers than we have. There’s really no excuse for our industry not to – at least the commercial providers. Until we get this right, workers are going to continue viewing pensions with, as government research recently found, ‘detachment, fear and complacency’.
