These were the conclusions from a panel of experts at a recent Defined Contribution Investment Forum Event, which pointed out many UK savers were “disengaged and disillusioned with pensions, and financial services products more broadly”.
The panel pointed out that improvements in technology and the advent of big data could help financial services companies provide much more personalised information for customer. It called on pension companies to utilise this to “fundamentally rethink” communications strategies.
The panel said that if people are deluged with information which isn’t personal, they switch off.
Defined Contribution Institutional Investment Association chief executive Lew Minsky, a member of the panel, said lessons could be learned from the US.
“In the US a huge shift is taking place towards a broader, holistic concept of financial wellness.” He added younger workers, and those who will soon move into the workplace do not have the same concept of retirement.
The panel pointed out that it is possible for members to feel engaged, without needing to know too many technical details, in the same way that they wouldn’t expect to know the technicalities of how a car engine is put together in order to assess whether the car is good value.
The panel also suggested that more sophistical segmentation, looking at an individual’s attitudes and financial behaviour, may be a more successful way of tailoring information – rather than relying on the basics of age, postcode and fund size.
It also noted that that engagement with members does not have to be a binary choice.
Inertia can help members into pension schemes and guide them through to retirement. At the same time, effective communications can build members’ feelings of trust and positivity in pension schemes.
Minsky pointed out that in the US engagement to encourage savers to make more active decisions about their retirement savings, has often led to people making poor investment decisions, particularly at the accumulation stage.
He says: “We’d rather led scheme design and an series of effective defaults control the situation.”
However he says there is a clear need for people to take a more active interest in their pension savings as their approach and move into retirement. Nest’s director of customer engagement Mark Rowlands pointed out that it is possible to use both approaches.
He says evidence from the US and Australia supports default investment solutions, as evidence shows when people start making their own investment decisions, they typically underperform professionally managed default funds.
The panel also included Pensions and Lifetime Savings Association chair, Richard Butcher and the founders of two consumer websites: Holly Mackay, who founded Boring Money and Iona Bain, founder of the Young Money blog.
Mackay says pension providers should rethink the concept of ‘engagement’. “[The word itself] is clinical and it perpetuates the idea that we view our customers as cells in petri dishes to experiment on,” she says.
She says people need to understand that money discussions can make people feel anxious. “To gain trust you need to be very high on the competence scale, but also the benevolence scale. And [financial professionals are] so busy shoving competence down people’s throats that they don’t do well on the benevolence scale.”
Rowlands added that the rapid growth of master trusts looks set to transform the UK pensions landscape. He points out that Nest’s assets are growing by £250m a month.
“I think over the next couple of years, the UK pensions landscape will be fundamentally different, and the scale will drive a whole different set of solutions and behaviours. The future looks really positive for pensions in the UK.”