How to make people care about pensions
You might be surprised to hear that I don’t know very much about my own pension. Lots and lots about other people’s pensions, but only a little about my own.
I don’t think I’m alone in this. Many people know very little about their pension schemes. The result is a population that is underprepared for retirement or makes bad decisions (or no decision at all) when it does need to act.
Believe it or not, that’s not all bad. People don’t need to know everything about their pensions – just making the default investment option better can improve pensions saving. And inertia is the premise behind auto-enrolment, with millions more saving for pensions without having taken an active decision to do so.
But inertia only works for as long as a member doesn’t need to do anything. Taken too far, it can make people complacent or clueless when they do need to act. And while default arrangements definitely have a place, by definition they won’t be tailored to individual members.
An engaged workforce is as good for employers as it is for members. Staff who have planned for retirement can leave on their own terms – meaning older employees are there because they want to be, and new employees can rise through the ranks.
In the right hands, a well-promoted pension could also give an employer a reputational edge. After all, it’s taken for granted that higher pay tends to motivate people. If that’s the case, why do modern employers not use pensions (a kind of long-term bonus pay package) as a way of “recruiting and retaining the best talent”?
The goal, then, should always be to engage employees, even if this feels like an uphill climb.
So if you are an employer, how do you make people care about pensions? Technology is an obvious and useful tool for keeping employees up to date on their pension, and building an ongoing relationship. There’s also a place for low-tech meetings with pensions advisers and spokespeople.
But for me, the answer lies in the size of most pensions – it’s likely to be one of a person’s largest assets, maybe as valuable as their house. If that figure can be made real, it’s empowering.
Very few of us think of ourselves as investors, but virtually everyone has a pension fund. In most defined contribution schemes, we have choices about what we do with our money. For some, that might mean an opportunity to see into a world of high finance, with the corporate glamour that entails. For others, it might mean considering environmental factors when selecting portfolios.
Ideally, the end result would be a virtuous circle, with employees saving more for retirement, feeling empowered by their larger pension, then saving more for retirement, and so on.
All of this might be encouraging, but it can often be difficult to work out when there’s a case for involving employees and when, actually, it might be best to take a decision for them. The reality is that a balance needs to be struck. Lawyers and other professionals might be able to help you work out where this line is, and make sure letters and emails to employees say what they need to say, without descending into jargon.
Ultimately, employers’ and employees’ best interests are aligned, and are best served by keeping members engaged.
14th December 2020
What trustees should be focussing on as we head into a new year?
20th November 2020
The UK Government confirmed its intention to introduce regulations to help prevent pension scams.
3rd November 2020
The Pensions Regulator has published guidance on defined benefit superfund pension schemes.