Is all engagement good engagement?

Member engagement tends to be one of the first things that I talk to employers about. Whilst of course it’s important to engage individuals with their long-term savings, it’s also worth asking ourselves the question:

“Is all engagement good engagement?”

As a starting point we need to consider what we mean by engagement and why we are striving to achieve it. If we had to boil it down, I believe that the desire for engagement is to help people take control, make the right choices, and ultimately save enough to be able to provide an income in retirement.

Secondary to this is ensuring members understand and value the employee benefit being provided by their employer.

There are 3 key elements that directly influence the outcomes that members can achieve:

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

Now of those 3 I’d argue that most members are only really equipped to manage the first one – contribution levels – but let’s look at how we can support members with each key element.

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. It may sound simple in practice, but pensions continue to not be the first thing that people think about when they have a few pounds left in their pay packet at the end of the month. So, what can we do to encourage interest and drive action?

Demonstrate the options – you need to be able to replay to the member what they currently contribute not only in percentage terms but also in pounds and pence. Make it real to them and position it in a light comparable to other financial products they have access to. Demonstrate the value of the employer contribution too, as what other financial products offer to put in additional money on their behalf?

Show the impact of change – show them the benefit of contributing more, what could this mean for your future? Would you put in a little now to retire 5 years earlier? Do you really understand how much you may need each year in retirement? Great steps have been taken recently with the industry-wide acknowledged PLSA Retirement Living Standards and it’s this type of evolution that better help members understand what they should be aiming for.

Facilitate the change – once the member is motivated to make the change, it has to be as easily as possible to do so and the transaction needs to feel akin to making a change with your bank account. If members go through the process only to find out they can’t make the change without downloading a form or logging into a separate website, then I think human nature will kick in and we will lose some along the way as other tasks get in the way and pensions apathy kicks back in.

When it comes to investment strategy, a sensible starting point is to assume that members often don’t realise they are invested 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. For some schemes and trustees the level of members choosing to invest outside of the default is seen as a demonstration of engagement. Given the time and effort put into constructing and managing default funds, as well as the significant governance focus on them, and of course the buying power of these defaults I’m not sure I agree that members investing outside of the default, whether engaged or not, is always a good thing. Is it not 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.

The third element is charges which are important, though members have little chance to influence them. Whilst they should get sufficient focus they shouldn’t be considered in isolation, as the cheapest price may mean shortcomings in other areas. That might be sub-standard investment solutions that are detrimental to net returns or member communications and tools that disengage members, meaning they don’t make the right decisions in the savings phase and miss out on maximising contributions for example.

Now to the hard bit. How do you engage members with each of these elements in the first place? Having worked in this world for some time (15 years and counting), I know that most people don’t wake up and choose to engage with their pension. 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 timely 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. Simplicity is key here and creating a clear, positive experience the first touchpoint you have with the member is the first step to winning the long-term engagement challenge.

It’s 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’ve 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’ve described above still apply. We need to engage them, we need to guide them to the appropriate tools and services to support them and we then need to make it easy for them to manage their monies. Let’s 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 and recent technological advancements means that we are in a better position than ever to win the pension battle.

I am passionate about this area and feel that technological advances mean we are now in a strong position to make better engagement happen. In particular Master Trusts, with the significant resources available through their scale, are leading the way when it comes to delivering innovative and engaging communications that engage and lead to action. If you are interested in discussing this or any other area of Master Trusts further, please do get in touch