Learn the benefits of simplicity

Member engagement tends to be one of the first things that I raise with employers. While it is obvious to engage individuals with the importance of saving for retirement, it is also worth asking ourselves the question: 

“Are we scaring people with overcomplicating things?” 

As a starting point, we need to consider what we mean by “engagement” and why we are striving to achieve it. It is proven that a more engaged member will be someone who educates themselves on the benefits available, takes control, hopefully makes the right choices, and ultimately save enough to be able to supply an adequate income in retirement. There are 3 key elements ultimately that directly influence the outcomes that members can achieve: 

1. Contribution levels – are they putting away as much as they can what they can afford, and making the most out of any employer contributions on offer? 
2. Investment strategy – do they understand the investment options available and the levels of risk they can afford to take? 
3. Charges – are they part of a scheme that has competitively priced investment funds? 

Of these 3 elements, I would argue that most members are only really equipped to manage the first one – contribution levels – but let us look at how we can support members with each key element. 

Contribution Levels 

Reviewing contribution levels, especially for younger members, is the most effective mechanism to give them a better chance of achieving a better outcome. Most of the employers I talk to offer generous matching contribution structures for members to take advantage of and, in that case, the onus is on the pension scheme to ensure that the benefits are being communicated loud and clear especially when retirement planning is naturally not of priority for many of these younger people. So, what can we do to encourage interest and drive action? 

• Simplify the benefit – you need to be able to replay to the member what they currently contribute not only to percentage terms but also in Euros and cents. Make it real to them and compare to other financial products they have access to. Demonstrate the value of the employer contribution too and the huge tax savings versus other financial products being offered? 
• Show the impact of change – show them the benefit of contributing more – what could this mean for their future? Would they put in a little now to retire 5 years earlier? Do they really understand how much they may need each year in retirement?  
• Facilitate the change – once the member is motivated to make the change, it must be as easy as possible to do so, and the transaction needs to feel akin to making a change with their bank account. If members go through the process only to find out they cannot make the change without downloading a form or logging into a separate website, then human nature will kick in, they will become frustrated, and we will lose some along the way as other tasks take priority and pension apathy kicks back in. 

Investment Strategy 

When it comes to investment strategy, a sensible starting point is to assume that members often do not realise they are investing their contributions at all. Start from this position and clearly set out the options available and the factors the individual should consider before making a choice, such as time to go before retirement. Many members will simply not make a choice and end up on the Trustees’ choice of right default strategy. Given the large number of members in this cohort (often 80-90%) it is therefore natural that significant time, effort, and governance are put into constructing and managing this default strategy. Those members who decide to self-select can be assumed to be more engaged given their active involvement in selecting their specific funds but that is not always the case. They can often be engaged at a point in time and later regret a decision they previously made and never revisited. The default lifestyle strategy often an embedded feature guards against this human error of “set and forget”.   

Therefore overall, it is often better to provide members with a simple framework of investment options around the default asking those members that engage to instead consider risk and outcome to be guided to a suitable investment strategy out of a number lifecycle options. 

Charges 

The third element is charges which are always important, though members have little chance to influence them. Whilst they should get sufficient focus, they should not be considered in isolation, as the cheapest price may mean shortcomings in other areas e.g. cash funds that do not beat inflation, sub-standard investment solutions that do not beat their benchmark, etc.     

The solution? 

Now to the hard bit. How do you then engage members with each of these elements in the first place? Most people do not just wake up one morning and choose to engage with their pension. There must be a catalyst. Technology in the DC pensions world has developed greatly in recent years, giving members a central platform in which they can fully self-serve their pension savings. There needs to be a strategy in place to give members a reason to care and a direct link through to the platform available to them.  

A first step to engagement is the delivery of prompt reminders, using the data we know about the member, with a clear call to action so that the member knows exactly what is being asked of them.  

Creating a clear, simple, and positive experience at the first touchpoint you have with the member is the first step to winning the long-term engagement challenge. 

It is not just the first touchpoint however, as there are lots of other areas and other times in an individual’s life that they need to understand and engage with their pension. The most obvious one is the build up to retirement and how to help members make the right decision for them to avoid eroding the value they have built in the savings stage. This is a big area for discussion and there are lots of resources and tools that can be made available to support members, but ultimately the same techniques I have described above still apply. We need to engage them, we need to guide them to the right tools and services to support them and we then need to make it easy for them to manage their monies. Let us make the process of retiring the easy bit, leaving individuals to manage the emotional elements of finishing work. 

Member engagement, and good engagement at that, is one of my great passions.  

Recent technological advances mean we are now in a strong position to make better engagement happen. Master Trusts, with significant resources available through their scale, are leading the way when it comes to delivering innovative and engaging communications that reaches the member and importantly leads to action. If you are interested in discussing this or any other area of Master Trusts further, please do get in touch. 

WTW LifeSight 

Ireland as a country is still quite youthful in terms of members retiring with a full career from a defined contribution pension scheme. WTW therefore uses both this experience but importantly their global experience in running Master Trusts to build a truly market leading solution for employers and employees. Through novel and intuitive tools such as AgeOmeter WTW’s LifeSight solution helps engage members by giving them the age they can afford to retire, allowing them to see how changing contributions, investment strategy and including exterior pension assets brings down that age. Simple and easy to understand. This approach means that the member not only understands the benefits of their contributions but takes ownership of when they can afford to retire. Better engagement. Better outcomes.