The building society successfully boosted the number of members making extra contributions from 9% to 84%
Employees of Nationwide know a thing or two about saving. Working at the world’s biggest building society, they are well aware of the importance of putting money aside for the future.
But head of pensions Ian Baines says this attitude was not always apparent in the amount staff were paying into the organisation’s defined contribution pension scheme. So in 2014 he set his team a challenge to get more of the fund’s 12,000 members thinking about their pensions, and making higher contributions.
“We looked at adequacy rates and we concluded that people were not on target for the sort of pension outcome they wanted and we wanted,” he says. “At the heart of that, was the fact they were totally disengaged with the group personal pension.”
Nationwide already gave a relatively generous core employer contribution of 13% with a core employee contribution of 4% and another 3% in matching contributions up for grabs. But very few staff took advantage of this, so Baines decided to focus on boosting the numbers making matching contributions.
It was really important that we encourage them to pay more to get more, so that they would take ownership
“We felt it was really important that we encourage them to pay more to get more, so that they would take ownership of their pensions,” he says.
His solution was simple. Like many employers the default contribution structure was that members paid the minimum to get the minimum – in this case the core 4%, resulting in a combined contribution of 17%. After carrying out some financial modelling, Nationwide decided to flip this on its head, by defaulting members in at the highest matching contribution – a 7% employee contribution resulting in a combined 23%. Members could then reduce contributions (and give up employer match) if they wanted.
They had to actually go in during their flexible benefits window to dial down the contributions
“We set it out that people could pay less, but they had to actually go in during their flexible benefits window to dial down the contributions they pay,” says Baines.
Taking its cue from auto-enrolment, the firm resets the contribution levels each year, requiring members who want to save less to opt down annually.
The impact has been impressive, with an immediate 10-fold increase in the percentage of members paying more than the core contribution. A few members subsequently reduced their saving rates but, almost a year-and-half in, 84% are making additional contributions – up from 9% before the changes were made.
We spent the first half of 2015 really raising the bar in terms of people’s awareness of pensions
But this success did not come overnight. “Raising contributions in a short space of time would have caused a negative reaction,” says Baines. “So once we decided at the back end of 2014 that this was what we wanted to do, we then spent the first half of 2015 really raising the bar in terms of people’s general awareness of pensions.”
This involved running programmes and competitions about the value of pensions and getting people to engage with retirement saving emotionally. The team also commissioned a short, animated video (see below).
Baines explains: “We had campaigns about people’s dreams for retirement, and what they aspired to do.”
The firm has also adopted Hymans Robertson’s Guided Outcomes tool – which takes in information about members’ retirement savings and lets them know if they are on track to meet their goals (and what they have to change if they aren’t) – and Friends Life’s My Money platform.
We want to use that behavioural nudge, where people don’t want to be the odd ones out
Taken altogether, Baines believes these moves have created a “new norm” that he now wants to capitalise on. “We want to use this new pensions saving norm to say to people ‘you’re in a minority here - the majority of your colleagues and friends are paying more in’,” he says. “We want to use that behavioural nudge, where people don’t want to be the odd ones out, to their advantage.”
The next step is to increase engagement, and the pensions team is encouraging people to sign up with Guided Outcomes, and populate it with information about their other retirement savings, and to think about consolidating other pension pots. Baines believes it will be easier to get people’s attention now their pot sizes are growing more rapidly.
Getting them on the platform will not only give members more information and control, it will also help Nationwide to target its communications more precisely.
This will gives us a rich source of member information to do those segmented comms
“Everything we’ve done now has been to all 12,000 members of the GPP,” says Baines. “But this will gives us a rich source of member information to do those segmented comms.”
The firm will be able to focus its messages on older members who are at the highest risk of missing out on their goals, for example, or those who appear have ignored promptings from Guided Outcomes that they will have to pay in more ore work longer.
We’re using that inertia, and in many cases apathy, to get people in the right place
So there is still plenty of work to be done, but Baines believes his scheme’s success in boosting saving rates by rethinking default contributions could provide a template for the pensions sector. This is particularly timely as raising contribution levels is a key element of the auto-enrolment review the government has just launched.
“It’s a logical extension to auto-enrolment itself,” says Baines. “We’re using that inertia, and in many cases apathy, to get people in the right place.”