You wouldn’t leave it to a stranger to select a family home on your behalf. So why offload your pension decisions?
Both involve major financial implications. But while house buyers will carry out plenty of due diligence – in the form of mortgages, conveyancing, surveys and insurance – the majority of pension savers, in an effort to avoid getting it wrong, default to doing nothing.
While it’s great that auto-enrolment is paving the way for the British population to have a half decent savings pot in retirement, it is just that: half decent. We’re all living longer and often taking gaps in our working lives. Consequently, 8% minimum contribution simply won’t generate sufficient funds for most people to live on in later life.
Add in the gender pensions gap and the situation gets worse. Despite women generally living longer than men, their average pension pot at age 65 is a fifth of that of a man the same age.1
Why change the status quo?
Pensions are complex. They always have been. And they always will be. Nothing new there. What is new is the need to support employees to make informed decisions. In a Defined Benefit (DB) pension world, it didn’t really matter that much if employees didn’t understand the ins and outs of their pension. It was all taken care of on their behalf and they could rest assured that the outcome would generally be good.
Now, in the absence of DB pensions and the introduction of new complexities brought about by Pension Freedoms, employers need to go above and beyond a tick box approach to pension changes. The good news is that with a structured approach to communication, it’s possible to shift 100% of your people from awareness to understanding and informed decisions. We know it’s possible because it’s a goal we regularly help clients meet.
Isn’t the legal consultation enough?
All employers need to stick to a prescribed, minimum 60 days, legal process prior to any change in members’ pensions. That’s a given. Whether it’s effective, however, depends on how you do it.
In order to ensure high levels of genuine employee engagement in the process and an end result that benefits your people and your business, you need to overlay it with an appropriate communication strategy and plan. A plan designed to support your members to be in a position, post consultation, to make important decisions for things such as: contribution rates, investment funds and target retirement age.
The route to informed decisions
Start with an all-of-company general awareness programme using things like posters, pull up banners, information on the intranet and ‘talking head’ style videos with someone in a trusted figure capacity such as the HR Director or Pensions Trustee. (NB research shows that people are more likely to watch a video than read a handbook).
Put in the place the mechanism required to gather feedback. You need to demonstrate that the consultation process has been meaningful, with employee feedback properly considered by the employer.
As part of this process, personalised illustrations are crucial. Employees need to understand how they would be affected by any potential change. Personal illustrations help answer the question “What’s in it for me?”.
Another important question that employees need assistance with is “How much will I need?”. To help with this, AHC, a Gallagher company, has designed an interactive modelling tool – known as ‘Hitting the Target’ – which helps people build a picture of their future retirement and the income they’ll need to achieve it.
We also supported the Pensions and Lifetime Savings Association (PLSA) on the design and build of its recently launched Retirement Living Standards website, which aims to help people cut through the ambiguity around retirement planning to help UK savers achieve better outcomes.
Once employers have considered the feedback and communicated the changes that are being implemented, you enter the all important decision phase. Again, employees need help with what their choices are and how to advise their employer. Typically this involves providing employees with online or hard copy forms to complete and return.
As you near the end of the decision phase it is important to monitor who’s returned their decision forms. And, as you get closer to decision deadline, move to a more targeted, personalised campaign, involving one to one support from HR where required.
The end result of the above process? A pension change programme that works better – one that supports wellbeing and engagement. Instead of the majority passing the buck and opting for the default, you get to a stage where 100% of your people: are fully informed about the changes; understand how they’re affected personally; know what’s happening and when; and know what action they need to take and when.
Top tips for effective pension change communications:
- Start by making it clear to people what you want to do and, as part of that, what you want employees to do. What’s the end goal of the consultation process.
- Determine who’s affected. Carry out any segmentation required. Different audiences will be affected differently.
- Establish key messages according to the different audiences.
- Make it easy for people to give feedback.
- Take a mixed media approach, using routes to information that your people feel comfortable with. Start with general awareness, monitor responses, and as you get closer to the decision deadline take a more personalised approach.
- Have in place a default position in case some people don’t return an informed decision.
Karen Bolan, Head of Engagement Strategy at AHC, a Gallagher company
1Chartered Insurance Institute, “Insuring Women’s Futures, 2018,” [Accessed March 2020] https://www.insuringwomensfutures.co.uk