To get pensions communications right scheme managers must think about everyone they know (and what they care about in pensions), says Hannah Lewis, director of Behave London
Hannah Lewis will be at Pensions Communications Forum to talk about what Behave London’s research has uncovered so far, and what that means for the future of defined contribution. To hear from her and other speakers register here.
We’ve been looking at DC communications through the eyes of those who count – the members. When we started our research, we thought we’d just be looking at communications to members. But then The Pension Advisory Service (TPAS) also added their data to the mix – brilliantly helping us to spot patterns and trends in the data. We’ll be publishing our research in April – but until then, here are some snippets:
Big Data – what it tells us
We started by analysing 17,000 records from TPAS’s online enquiry forms. There are a few things we expected to find – that more men would make enquiries overall (as they have more pensions, historically), but we saw different themes playing out across generations.
One point to note – although men did make more enquiries overall, it’s age that skews this figure – the gender split is close to equal in enquiries for men and women from ages 30-45. Notably – women in their 20’s are much more engaged than men and made up 60% of enquiries in this age bracket.
The top three life events prompting for those in their 20’s to get in touch? Transferring pots, paying contributions – and leaving employment.
Flirty 30’s and paunchy 40’s?
It’s a narrow split between paying contributions – and transferring out.
Feisty 50’s and above
It’s all about taking benefits. For those in their 50’s, however, the enquiries are still skewed towards retirement planning. But for those in their 60’s – “freedom and choice” was the overwhelming driver of enquiries from April until November 2015.
It’s worth repeating from our earlier blog – when we looked at the comments that enquirers made, the words that frequently jump out for those in the 50’s:
“TAKE”, “TAX-FREE”, “LUMP SUM” and, drumroll, “NOW”.
How do we talk to members?
Looking at member communication through the lens of behavioural science – there is plenty to worry about. We reviewed a wide range of documents from DC schemes, most commonly welcome packs and annual statements.
Let’s pick one human bias from the behavioural rainbow: Loss
We know that humans feel the pain of loss twice as much as a gain – losing £50 hurts more than finding a random £50 gives us pleasure. Loss is hardwired into us – we’re naturally primed to look for it. Consider some of these brilliantly regulator-compliant lines that hit that “loss” button:
- Your pay will be reduced.
- If you do not take this opportunity to cancel, and you want to do so at a later stage, you won’t be able to get any money back until you are able to take your retirement pension pot.
- It is possible that the value of the funds in your plan could go down. This could mean you get back less than you pay in.
- If the charges are greater than the growth on your investments, the value of your pension pot could go down.
- Giving up part of your bonus in return for a contribution from your employer.
This text is commonplace and while it might not surprise you – no one wants to fall foul of regulators – I’d argue, on the back of the research, combined with what we know about the human brain, we need to find balance. We need to create a conversation about the reality of investing when we talk to investors.
Yes, you might get back less than you pay in, but that over 20 or 30 years it is highly unlikey. The warnings need to be paired with their reality.
Yes, tell people that value of their pension pot could go down. Then show them that regular saving serves to even out the ups and downs of the market.
Yes, they won’t be able to get any money back until they retire. Tell them why this is a good thing. Because people are wildly over-optimistic. That there will be good times, and bad times, and to have a good retirement they need to be protected from themselves.
No, don’t tell them their pay will be reduced. Tell them it will be exchanged.
And for the love of potential-pension-pot holders, stop calling it salary sacrifice, call it it a salary swap, exchange, anything less sacrificial.
The thing about our behavioural biases is – you can’t change them. We’re hard wired to avoid loss. All you can do is use the same behavioural bias to show people the opposite end of the see-saw. The consequence. What the loss of a good retirement means.
That’s what we’re working on now – a set of antidotes. Because while you can’t eradicate the problem, you can help fashion a cure.
Hannah Lewis is the director of Behave! London