Hannah Clarke offers her views on the continuing emphasis on DC communications

Communicating effectively is becoming ever more important. Over the next few years, a key focus for both trustee boards and employers will be to put in place and review strategies to communicate effectively with employees about their pensions and other employee benefits. While the method of delivery may change, the need to engage with employees, to get them to understand the benefits on offer and take greater control of their retirement savings, is becoming even more important.

Before the impending pension reforms, the emphasis in the DC world was beginning to shift from accumulation to decumulation, as increasing numbers of DC members began to reach retirement, but now the reforms – in particular the introduction of auto-enrolment – will be the biggest driving force behind the need for effective communication.

As The Pension Regulator revealed its plan for the years 2011-2014, the period encompassed by the plan 'will see the biggest changes to workplace pensions for generations'.

But the changes will only be successful – that is, result in an increased number of people having a better outcome at retirement – if employees once enrolled stay enrolled, saving at a level that will result in a suitable level of pension, and making appropriate choices at retirement. Employee apathy may help in keeping employees in the scheme but employee education is needed to ensure that employees save enough and make appropriate investments.

While a great deal of effort has been put into encouraging new employees to join pension schemes, to pay a reasonable level of contribution, and to make informed investment choices, the communications at the other end of the member's journey have not had the same attention. It is my view that, despite the recent regulatory focus on communicating retirement choices, there is some way to go before employees, especially those who
have moved from defined benefit arrangements, are comfortable with making the various choices they need to make when in a DC arrangement, particularly when it comes to investigating the open market option and taking the time to shop around.

What is effective communication?
Effective communication is engaging and interesting, with clear messages expressed simply, in a way the reader will understand. Where action is needed, the reader should be able to see what that action is and the importance of taking that action.

For communication to be effective, it must be based on a solid understanding of the audience, the messages that need to be communicated to that audience, and the delivery methods available to get that message across. Above all, it must be tailored to the particular audience. One size does not fit all, both in terms of expressing the message and in the way it is delivered.

Looking at how the employer communicates with its external customers is also key. Most employers realise the importance of professional communications when interacting with their external customers – and their employees will recognise the care and attention that the company puts into those communications. In such cases, if the communications with the employees – the internal customers – are of a lesser standard, the employees' attitude to that communication is likely to be negative before they have even picked it up. The inferior standard will signal to them that the employer regards them as second-class citizens, and may even lead to a perception that the message itself is of little importance.

Getting members to show an interest is made even more challenging when external events intervene to damage the perceived value of saving for retirement. The current position in Ireland is a case in point. At the time of writing, the Irish pension industry was contesting their government's plan for a levy on all private pension schemes to fund a job creation scheme. Such unexpected assaults on pension savings (akin to the infamous pensions raid on funds undertaken by Gordon Brown when he cut Advance Corporation Tax relief) do not help convince employees of the merits of locking away their savings in a pension arrangement.

In conclusion, employers invest a good deal of time and money in offering pension arrangements to employees who are often less than willing to take up the offer, and the arrival of auto-enrolment means that they will have to work even harder to get the pension message across, if they want to keep employees enrolled.

Hannah Clarke is technical pensions consultant at Ferrier Pearce

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