We explore the latest report from the Pensions Policy Institute

The Pensions Policy Institute (PPI) has released a report on improving pensions engagement; Jasmine Urquhart explores whether better industry collaboration and default designs could improve engagement…

The PPI’s ‘What could effective pensions engagement look like?‘ report was released this week and follows the PPI’s briefing note on engagement looking at possible engagement strategies and the benefits and costs of engagement for stakeholders.

The report establishes four categories of members, ranging from those who are both engaged and with good knowledge of pensions, to those who are neither engaged nor with good pensions knowledge.

Elements of engagement

The report established elements of good engagement, with saving at a high enough percentage, good investment choices, minimising costs, and members being able to access their pensions in a productive way.

It added successful engagement should be measured in terms of good outcomes for members, noting, however, that improving engagement may come at a cost for various stakeholders, such as the time and resource needed to implement strategies.

It said better engagement would benefit individuals, who would gain from improved outcomes and health and financial wellbeing in retirement, but said it could also put them at risk of making poor decisions.

The industry could benefit from improved contribution rates from members and better tailoring of offerings, however the report said the cost of engagement could increase if members do engage more and require more contact with their provider.

Employers could benefit from improved recruitment and retention but could be at risk of straying from the legal boundaries between advice and guidance.

The government and regulators could also benefit if pensioners have improved incomes, which would lead to less of a requirement for benefits provision within this group, as well as improved health and wellbeing.

However, adjusted saving and access behaviour could lead to changes in tax revenue. The report pointed out that individuals have the most to lose and gain out of the four groups.

In addition, young people may be at risk of poor outcomes given the increase use of social media for financial information, with the TikTok hashtag ‘#PensionsUK’ having 3.8 million views, and ‘#FinTok’ with 4.7 billion views.

The report also pointed out that worse outcomes for members could be passed onto the government and regulators, with poor retirement outcomes leading to worse health, and therefore adding to the burden on the NHS.

It therefore proposed possible options for possible engagement policies, such as those both designed and implemented by the government and regulators, or those designed by the government and implemented by industry. However, these could be costly.

Other possible options could be policies designed and implemented by the industry (while government approved) or those outsourced to third parties. However, it said these may be less effective, and providers may only focus on their existing customers when targeting engagement.

Barriers to engagement

The report highlighted the issue that there are “no universal measures” for effective engagement, with email opens and clicks currently a widely used option – with more “nuanced” measures essential for improving engagement.

Behavioural barriers for members could include their demographics, attitude to pensions, low understanding, and lack of day-to-day exposure (unlike easy-access savings, for example).

There is also low public trust in pensions, with a 2021 Trafalgar House survey noting this was 4.56 out of ten, while last year’s Standard Life Retirement Voice survey found almost half (49%) of savers found pensions too overwhelming.

Subconscious behaviours such as inertia, or the bias to value present benefits rather than future pension incomes, as well as a lack of engagement with information causing discomfort about the idea of pensions, may also present barriers.

With “strong and inherent” biases such as these, possible options could include mandating contributions or stronger “nudges”, as well as better default designs.

The report also noted over half (52%) of UK adults have one or more “financial vulnerability” characteristic, according to the Financial Conduct Authority’s 2022 Financial Lives survey – with savers needing more ownership and control over their pensions.

Strategies

Potential strategies for improving engagement could include collaborative campaigns and further work on measuring engagement, as well as possible financial education from employers to build “pension-specific” knowledge and signposting.

Using gender and pot size instead of just age could also work, but there could be challenges around obtaining this data. One option could be tracking usage paths on apps or sites to get information, the report suggested.

Digital accessibility is also an issue, but providers could engage in possible “gamification” of user journeys or provide loyalty rewards for improved engagement.

The report also noted dashboards would help with engagement – citing a 2021 Association of British Insurers survey which found 80% of those with low financial confidence said they would benefit from seeing all their pension pots in one place.

It said planned engagement journeys could also work, with specific actions and nudges at certain life stages or ages. The report also commended the Scottish Widows ‘Pension Mirror’ campaign, and noted retirement projections and calculations could be based on the Pensions and Lifetime Savings Association’s Retirement Living Standards.

Framing contributions in specific terms such as “a cup of coffee a week” could also work.

Better language, such as framing pensions in positive terms, refraining from using jargon, grounding things in reality (such as by acknowledging the cost-of-living crisis) and personalisation could work – and the industry should agree upon better language.

The report pointed out 74% of members can’t identify a single pension acronym used frequently by the industry, according to a 2022 Aegon survey.

Timing engagement for “teachable moments” such as marriage, having children, moving jobs, buying a house, or receiving pay rises, could also work. However, members might be overwhelmed at these stages – but the report said engagement could build trust even if members don’t follow through.

For those with more financial vulnerability characteristics, better guidance and advice, or better defaults, could help.

Minimum auto-enrolment contributions are unlikely to lead to good outcomes, so the report suggested auto-escalation at different ages, or default savings rates.

Full lump sums should also be discouraged, and the industry could also come up with “rules of thumb” as used in New Zealand – such as a pension pot being ten times the annual salary.

Government safety nets such as means-tested benefits should also be used to protect the most financially vulnerable members from the risks of poor outcomes.

Aegon head of pensions Kate Smith says the research is “a great starting point for the pension industry and policymakers to build on when it comes to the thorny issue of pension engagement”.

“At Aegon we have three key areas of focus in our engagement journeys – insight, testing and incorporating customer feedback, we do this through behavioural science and digital innovation.

“We use a variety of tools to improve outcomes and guide our decisions, including a state-of-the-art customer panel made up of over 7,500 participants including employers, advisers, and members (with vulnerable customer cohort),” she explains.

“This offers us insights on people attitudes and behaviours, testing of our key communication, and feedback on all our touchpoints with members.”