If you’ve ever sighed and wearily closed the tab on your online pension dashboard, you are not alone.
Lack of digital innovation and uninspiring saver engagement efforts by the pensions industry could be jeopardising millennials’ willingness to save enough for a decent retirement, new research by ShareAction has found.
The responsible investment charity is urging the pensions industry to radically rethink its “outdated and uninspiring communications”… with younger workers in particular.
In April, minimum contributions into workplace pensions will rise from 2 per cent to 5 per cent of salary. ShareAction says this risks prompting UK savers to opt out of their workplace schemes, even though 5 per cent is still well below the 12 per cent often advised by industry experts.
How to make pensions interesting? Tell people what’s IN them
The campaign group believes that one solution is to make pensions more emotionally engaging, by explaining the many ways that savers’ investments are making a positive difference in the world.
84 per cent of pension scheme members say they would prefer a pension that uses investments to encourage companies to operate responsibly.
ShareAction recommends that auto-enrolment providers engage scheme members by framing their communications more emotionally. Most auto-enrolment providers undertake a range of responsible investment activities but fail to communicate this effectively to their members.
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ShareAction’s report challenges providers to use responsible investment as the basis for low-cost but tailored digital communication with members, showing them how their pension is relevant to the economic, social and environmental issues that matter directly to them.
For example, if providers survey their members and find that they care about fair pay, providers could communicate their stewardship strategies on executive pay and a Living Wage.
If members care about the environment, providers could explain, not least visually, how their money is invested in green infrastructure and renewable power.
Interested savers could get information on stewardship strategies to address the gender pay gap and support flexible working.
Once this initial communications gap has been closed, there may even be scope to develop investment options allowing savers to invest in more dedicated impact investments further down the line.
The ethical pension fund options that are on offer tend to offer returns that are comparable with default funds, if not higher, over the long term.
More than half of millennials want to do their financial planning on a smart phone, so emotionally engaging stories about where pension assets are invested should reach young savers through digital and social media channels. All UK pension providers should have an app and an active digital presence. Only two of the nine largest UK pension providers in the study have an app, and these two apps have low user ratings.
ShareAction found that, other than a welcome pack and annual statement, most pension providers do not actively reach out to members until five or ten years before their retirement date.
Further improvements that ShareAction will campaign for include:
- Annual reporting by auto-enrolment providers on the percentage of active usage of their online platforms and strategies to increase saver engagement.
- Surveying members for their views on how and where their money is invested. The results of these surveys should inform communications, including tailoring them to members’ specific interests.
- A review by the Department for Work and Pensions of the role of employers in enabling or inhibiting member engagement.
- An industry-led advisory group on member engagement and financial inclusion, sponsored by the Minister for Pensions to examine mechanisms that could help achieve deeper engagement with pensions and higher contributions.
Catherine Howarth, Chief Executive of ShareAction, said: “Our research finds a huge opportunity being missed to get people feeling more positive about their pensions and about saving in general. For young people, it’s essential to make the case that their pension is already making a positive difference to their lives. It’s not all about waiting until retirement. The savings crisis remains acute in the UK but our report finds low cost opportunities for the pensions industry to make a real difference.”
Bruce Davis, Joint Managing Director of Abundance Investment, said: “For too long the pensions industry has acted like English people abroad, as if shouting more loudly and more slowly was the only way to get people to engage with and understand financial decisions. We welcome this report which provides solid evidence that people do understand the power of their pension pot to create not only a more secure future for themselves, but a more sustainable world to spend it in. This report also clearly demonstrates how auto-enrolment could be the key to unlocking ethical investment for mainstream investors, if only the providers would listen to the demands of their members to know how and where their money is invested.”
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “ShareAction pinpoint the alarming disconnect between workers and their pension savings, suggesting auto-enrolment is set to make things worse, not better. People lack the motivation to take control of their own retirement, weighed down by a poor understanding of where their pension is invested, outdated and complex communications and a lack of personal choice of pension provider.
The report suggests modernising the way people access their pension information can boost flagging interest levels, this will help but there is a need to have human interaction too. Engaging people with their retirement savings is possible, albeit not easy. Allowing people to choose which pension service receives their auto-enrolment contributions would drive up levels of personal ownership and see a step change in engagement levels. Only once issues of low engagement are tackled, will people gain the confidence to decide how to invest their money, which may include ensuring their pension savings are used as a force for good.”
The Government’s interest in building a culture of social impact investment, including through the pension system, is evident through the newly appointed taskforce on social impact investment.
ShareAction said its proposals would lay the groundwork for a pension system in which people could connect with their money and, as the social impact investment market develops, could be ready to make informed decisions about social impact options.