When saver engagement comes – and I guarantee it will – how can we show the value of what we offer? As saver interest grows, can we tell the story of how we’re all helping to plan for our members’ futures and, if so, will we be able to service all their enquiries and not let them down?
The price of a family car
Common sense tells us the more a member has saved, the more involved they’ll be with their pension savings. It’s noted in Australia, who’ve had auto-enrolment since the 1990’s, that people take an interest in their savings when the value of their pot reaches the price of an ordinary family car.
Auto-enrolment, pension growth and increasing member engagement
As we approach the UK’s 10-year anniversary of auto-enrolment, pension pots are growing, and people are beginning to take more interest in their savings. We’ve seen this in our own members, where those who have more saved are more active in their online account.
So, as providers, employers, and financial professionals, we need to prepare ourselves for more engaged members, the questions they’re likely to ask, and the support they may need.
What is the charge?
Once engaged, charges often come as a bit of a surprise to savers, and 2 questions they will ask are, ‘How much am I being charged?’ and ‘Can I get it cheaper elsewhere?’ The Cheapest isn’t always the best, but in the case of pensions, value for money is important.
Value for money
Value for money for the newly-engaged saver is important, and what charges are paid for in pounds and pence is essential.
Flat percentage charges increase the cost to the member as their savings grow. So, to improve value for money, many financial companies reduce charges gradually as a member’s savings grow.
Employee benefits benefit employers too
Employers also want value for money from their workplace pension schemes too. Research tells us that employees value their employer’s pension contributions – second only to holiday entitlement. A scheme that lowers a member’s charge as their pot grows, effectively rewards loyal employees.
For employers, it’s very difficult to examine value for money at an individual level. Therefore, offering a scheme that reduces employees’ charges demonstrates value and promotes ownership of the journey towards an affordable retirement.
The shift from defined benefit to defined contribution pensions places greater responsibility on the member. Individuals approaching retirement must decide what to do with their savings and consider competing future variables, such as longevity, inflation, investment returns, and risks. How can we help them see the importance of those decisions?
Creating the journey
Our long-running New Choices, Big Decisions longitudinal study highlights that as people approach retirement, financial decisions can be made with little grasp of the full facts. Instead, they often choose the path of least resistance.
As an industry, we’ve confused savers instead of creating a simple journey of saving and then spending. What’s needed are guided routes into retirement, starting long before retirement approaches, when trigger points activate engagement and forward thinking. We must make it easier for them to become engaged with their savings and show our value.
Knowing how much money they have, who they can pass it on to if the worst happens, and where they can get simple retirement planning tools may be enough for some savers. For them, accessing their pot online must be the first step.
Pension engagement has been smouldering for years, but with a few small steps we can help ignite future interest for savers who want to know more. Employers, pension providers, and trusted financial advisers all have a role to play here in driving engagement and demonstrating value. The end destination should be a comfortable retirement. How savers think and approach that, along with lessons for us all, are discussed in our New Choices, Big Decisions report.
This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.