Workforce & Economics

Removing the "mental block"

Nov 21, 2016
By Steven Robson

Better and simpler communications can encourage long-term participation in DC plans and—just as, if not more, important—stop discouraging people from participating.

Retirement savings are seen as complex, confusing yet important to most of the U.K. population and, as such, individuals have a mental block when it comes to arranging their retirement finances. This is exacerbated by the language and volume of documents used by the pensions and insurance industry when communicating with individuals.

As a result the majority of the population tends to follow one of two different options when it comes to retirement savings:

  1. Ignore it on the ground that retirement is a long time away and there are other more pressing (often less important) issues to deal with.
  2. Try to understand their choices, gain a basic level of knowledge and make decisions based on knowledge gained at that point in time.

Most then typically revert to the option 1 and rarely revisit their decision until a specific reason (for example: a new job, getting married, having children, getting divorced, significant change in income) causes the need to go back through the same process.

This process was fine for those in a defined benefit arrangement, as long as they joined the scheme (NOTE: I once advised a non-contributory defined benefit pension scheme with a 75% take up rate!). If they did join then they would end up with a regular income in retirement, irrespective of their knowledge or effort. The problem is that this process does not really work in a DC environment.

Taking the world as we find it, it is unreasonable to assume or believe that the current population will transform into an engaged and motivated group who will actively manage their own retirement savings via a DC arrangement. As such, employers/providers need to change the way they communicate and provide a combination of simple, clear and appropriate communications alongside sensible default options. The communications will then advise what will happen if no decision is taken and the alternative options available.

The aim is to move as close as possible to providing the best position for an individual, irrespective of effort or engagement in the process.

Future communications strategy

Communications should be tailored to what the individual needs to know and consider at that point in time. Using data analytics, it should be possible to devise a series of communications linked to contribution rates, age, salary and possibly lifestyle that only discuss one or two specific points for individuals to consider.

As an example, United Utilities only talk to younger employees about, life cover, contribution rates and whether they wish to make an investment choice or not. The aim is to keep them in the Scheme, paying as high a contribution rate as possible and outlining what happens to their money if no investment choice is made. There is no mention of lifestyling or retirement options as this is not important for younger employees.

Jargon is removed as much as possible and the messages are quick and simple along the lines of “we will …” and “you should think about …”

A full retirement journey has been devised with a different series of communications from letters, videos, financial planning workshops and access to financial advice, as we believe it is needed along the journey.

The combination of sensible, practical default options that will work for most, alongside clear and simple messages that fit with where someone is along their journey is intended to educate DC members slowly and safeguard them along the journey even if they do not actively engage.

Removing the "mental block"

Hear from Steven Robson about how better and simpler communications can encourage long-term participation in DC plans.

About the author

Steven Robson
Former Head of Pensions, United Utilities Group

Steven Robson is the former Head of Pensions and formerly a member of the Business Services leadership team at United Utilities Group PLC, where he was responsible for all aspects of pension provision including chairing the company Pension Risk Management Group, commercial negotiations, management of the internal team and an increasing focus on DC. Robson has over 25 years’ experience in the pensions industry of which 16 years was spent in a consultancy environment.

He is a Fellow of the Pensions Management Industry, a director of Electricity Pensions Limited and former Chairman of the Manchester Group of the NAPF.