The Covid-19 crisis and subsequent economic fallout has underlined the importance of communication and member engagement in the pensions market. But the nature of this crisis has also driven big changes in the way messaging is delivered by both providers and consultants.
Given the lockdown and the restrictions on social distancing, it is no surprise that digital engagement strategies have come to the fore. Advisers and providers attending a virtual roundtable event hosted by Corporate Adviser, Engagement – Connecting in a Time of Crisis, agreed this was a positive trend, and emphasised that the switch to digital was likely to continue whenever the economy starts to open up.
Barnett Waddingham partner Damian Stancombe said: “This crisis is fast forwarding many of the trends we were already seeing, from more flexible working patterns to the wider take-up of digital communications.”
Aegon managing director, workplace business Linda Whorlow said digital capabilities, including webinars, webchats, personal video summaries, and online conferencing, had proved effective and efficient ways to offer reassurance to clients, as well as to answer employer and employees’ questions, and provide financial education remotely. This has led to some surprisingly positive engagement outcomes.
Data from Aegon suggests that these digital strategies, given an unexpected boost by the pandemic lockdown, have been increasing engagement levels. It isn’t just switched on ‘digital natives’ that are utilising these tools, this increased engagement is also evident from scheme members closer to retirement.
Figures from the insurer indicate that in April total member requests for online support were up by as much as 500 per cent. The provider saw a 74 per cent increase in the members using these digital services to request an update on fund values.
Whorlow says this increased traffic has been prompted by the dramatic stock market falls in March, but that it has been older members who have been more likely to request a fund update.
According to Aegon’s figures 53 per cent of those aged 55-64 requested fund value updates, compared to 33 per cent of those aged 18-34.
The provider’s data also showed that this digital engagement isn’t just about getting basic information. It can also prompt a change in member behaviour, if used effectively.
“With this market volatility it is not surprising there has been an increase in members checking fund values. But we can also see how members use this information, and what behaviour this is driving,” Whorlow said.
She pointed out 28 per cent of the youngest cohort – those aged 18-34 – had made additional one-off payments into their pension, presumably to take advantage of lower asset prices. This compares to just 10 per cent of the older age group – aged 55-64.
The fact that more than a quarter of this younger cohort are contributing more to their pensions was seen by some delegates as surprising, particularly given the fact the UK is facing a serious recession as a result of this extended economic lockdown, and unemployment is already rising.
But other advisers attending the roundtable said this did not seem out of line with their experiences. As several adviser delegates pointed out, people’s experience of this crisis can be very different, and may vary hugely depending on the sector they work in, their age, and financial cushion they have and the impact of the lockdown on their spending behaviour.
While some members face job insecurity and diminishing income, others have been able to continue to work from home and have seen day-to-day outgoings reduce, be it commuting costs or the money they would have spent on holidays, socialising and eating out.
Redington head of defined contributions Lydia Fearn said that it appears likely members have learnt lessons from previous stock market crashes. “It might be that it’s parents in this older cohort who are advising children it is a good opportunity to invest more.”
But when it comes to influencing member behaviour there is a more important goal than persuading those who can afford it to pay more in. One key issue is ensuring members aren’t stopping contributions unnecessarily, or switching to cash and withdrawing funds from pension schemes.
Rush for cash
Cowry Consulting chief choice architect Jez Groom said: “In any crisis it is inevitable that there will be a rush for certainty and cash. “As a business we are trying to advise people, whether by phone, email or secure messaging on a website, that now is probably not the best time to withdraw money from a scheme, or crystallise losses by selling assets. This closes down the opportunity for future growth.”
He said part of this consultancy role is to guide members and provide information on the different options or strategies available. “One of the key tasks is to try to understand which members are facing severe financial difficulties and might need this money, and which are just worried by external events and are looking to shift into cash as a precautionary measure. We have to filter where the real need is, and help others reorientate their goals.”
Hymans Robertson DC consultant Greer Flanagan said this triage of employees’ guidance needs is a potentially huge issue. Many members will be looking to their employer for help, and guidance and content offered by providers and consultants can support them in this role.
She pointed out that her organisation has seen a 28-year old trying to cash in their pension savings. “This crisis has highlighted the lack of financial resilience in many parts of the population.” She says this an issue the industry needed to address, in term of financial education, and offering more innovative products, such as the Nest sidecar savings initiative.
Stancombe agreed that low saving levels and high levels of personal debt remain an endemic problem, and one that this crisis is likely to exacerbate for many. He said: “Frankly I am amazed by the number of people putting more money into their pensions. Many are facing significant financial challenges, and will be worried if they have a job in three months’ time. For many people it will not be sensible to lock money away for the long term when they are more concerned about finances today.”
Consultants and advisers highlighted the fact that it isn’t just members’ financial resilience or lack of it that is impacting contribution behaviour. Profit streams and revenues at many companies have been hit by the lockdown, and this could impact current and future pension contributions.
Premier head of employer services Sue Pemberton said advisers also need to provide support and guidance for corporate clients, as well as individual members, to help them make appropriate decisions.
Certain sectors of the economy – such as leisure, hospitality travel and recruitment have been particularly hard hit, she said.
Several advisers said that they have had corporate clients, particularly those in hard-hit sectors, seeking advice on contribution holidays or reducing contributions down to AE minimums.
Currently regulations do not allow for companies to stop making minimum AE contributions, but those who have furloughed staff will have these pension costs met by the government.
Stancombe suggested this issue could get worse, and not just affect businesses in these hardest-hit sectors. He said all sorts of companies and entire sectors could find themselves struggling in future, as and when recession bites and government support is removed.
Fearn said that while DC schemes have been protected to a certain extent at present, there are concerns whether funding levels could be hit at a later stage particularly if there is a hit on DB schemes.
She explained: “Some DB schemes may be left with funding holes as a result of this current situation. If companies are going to struggle to fund these, then this could have an impact on funding available for DC schemes going forward.”
However, LEBC director Kay Ingram said that on the whole most corporate clients have continued to fund DC workplace schemes and have not sought to reduce contribution levels.
“When you look at the total cost of running a business, pensions remain a relatively small part of this, at least for DC members. At present we have not seen a lot of companies going down this route.”
However while this may suggest a broadly positive bill of health for the workplace DC sector Ingram did sound a note of warning.
“In many ways corporates are being supported by the furlough scheme, which to some extent may be kicking the problems they have further down the road. The real test will come when this furlough scheme and the various support grants and loans are withdrawn,” she said.
Others attending agreed that we remain at an early stage of this crisis, and while the current health situation will hopefully improve in the months ahead, it may take a lot longer for the economic storm clouds to lift.
The long-term implications could have a serious effect on the business plans and funding models of many DC pensions, particularly those in the master trust sector.
Flanagan said that trustees and those running master trusts need to look at how robust their funding models are going forward. Assumptions about new contribution levels, inflows and revenue
from existing assets under management will have to be adjusted, and this may affect future investment going forward, whether in technology, administration systems, marketing or member communications.
She said one consequence of this squeeze on providers might be to speed up consolidation in the master trust sector.
For advisers looking to recommend schemes and switch existing propositions then issues of financial strength and capital adequacy may become more prominent, as they did after the last financial crash.
Delegates debated whether providers that were regulated by the Financial Conduct Authority and Prudential Regulation Authority, as well as The Pensions Regulator, had an advantage in this regard.
Whorlow said that she expects more focus on these factors in future. “At Aegon we have always been keen to stress our capital strength, our prudent financial management and the fact that the master trust is backed by a global insurer. This should provide peace of mind for the client that we can continue to adapt to market conditions, and develop the proposition as planned.”
Fearn said the financial strength of a provider has always been an important factor when recommending a scheme. “With any master trust we want to look at the underlying business strength of the proposition. The authorisation process has helped — and has led to the consolidation of many smaller trusts.
“But we still want to look under the bonnet, see how the business is positioned moving forward, look at the assets under management and contributions flowing in before making any recommendation.”