Karen Gomm explores how saving for a pension can be encouraged through education, targeted communications and technology

Complex and baffling schemes, unpredictable returns and inflation has done little to extol the virtues of pensions to an already cynical workforce facing other financial pressures, such as paying off debts and saving for a home. The onset of auto-enrolment next year will go some way to redress this, but the real test for employers could be challenging current perceptions about pensions in order to retain new members.

Enticing the 14 million people currently not saving into a workplace pension, according to a recent report by the Workplace Retirement Income Commission (WRIC), could seem like a tall order for employers and pension providers, particularly when the reasons for not saving are as numerous and varied as they are.

"Saving for retirement is something that most people intrinsically know they should do but, like eating healthily, are inclined to put off to another day," says Bluefin Corporate Consulting head of technical, marketing and research Robin Hames. "For a significant number of people, their earnings barely cover their cost of living. This problem has been exacerbated over recent decades by the steady expansion (and the swift retraction) of easy credit to those on low incomes," he adds.

However, a harsh financial climate cannot shoulder all the blame for flagging pension sales. Many, misguided or not, believe the state will provide for them sufficiently in retirement, while others have grown distrustful of pension providers and indeed, of pensions themselves.

"There are a number of other fundamental reasons - because it's so far away, or they would prefer to save in another way, or they simply don't understand how pensions work. Of course the irony is, when they are interested, it is too late," says Zurich Corporate Pensions head of corporate distribution Stephen Lefley.

This is all the more reason why those within the pensions industry must work towards changing this misconception, says Standard Life head of corporate strategy and propositions Jamie Jenkins. "We must ensure that people value the positive aspects of saving, including employer contributions, tax relief and the potential for investment growth."

The advent of auto-enrolment next year under the Pensions Act 2008 is expected to go some way in achieving this by providing pensions to all eligible employees, but the challenge for employers will be making pensions easy to understand and relevant to today's savers.

“The first task is simplicity – form filling should be the preserve of the arcane and is now totally unnecessary. Yet, it remains prevalent. In reality it should need only three clicks of a button to join a scheme online for an employee to become a member of their employer’s group personal pension. Auto-enrolment will be effective for precisely this reason – it will be easier to join than leave,” says Hames.

Employers must also strive to impress the importance and relevance of the pension in a way that doesn’t alienate or baffle the members, he adds. “Buying a pension, and we must think of it in these terms, needs to bring with it a sense of satisfaction. But buyers need to have a sense of this product; in the absence of immediacy and tangibility, the key to this is to create an understanding of what the product will eventually mean to the buyer. And make it easy to purchase,” he says.

However, enticing new members is just half the battle for employers the real challenge will be ensuring they continue to save. “This will take ongoing education as to what people can expect in return and how their investments are performing and how much they need to pay to fund a decent retirement-taking into account their affordability. This will require well-written communications, easy to use online tools and regular meaningful updates on progress,” says Jenkins.

It is accepted that targeted communication can be a vital tool in explaining the benefits of a pension and encouraging saving among employees. However a fine balance needs to be struck to avoid either over complicating or patronising members.

“Approaches to talking to scheme members seem to have polarised. At the one extreme there’s a view that everyone is so different that each saver needs individual, holistic, regulated advice. At the other we’ve tended to treat everyone exactly the same – as a homogenised mass,” says Nigel Aston, business development director, for consumer insight firm, DCisions.

For this reason it is critical that employers and pension scheme providers understand who their employees are, says Fidelity International head of DC and workplace saving business Julian Webb. "We regularly run focus groups and research with members and clients to ensure we are giving them what they need to help encourage understanding of the value of pensions and to encourage them to save," he says.

As well as targeted communications, offering a more diverse range of products such as corporate wraps can also help to encourage savers by offering a financial flexibility previously unavailable to employees, in the form of workplace ISAs, share schemes and financial education, which can be managed by the member online.

"Corporate wraps can provide the means of engaging the previously unengaged employees. For the first time since the advent of DC, the member experience is created by the use of intuitive technology. The employee is 'warmed' into saving as opposed to pensions and if a shorter term ISA is more appropriate to the individual, then the corporate wrap can facilitate the application," says Lefley.

Employees are also able to transfer their funds online to suit their needs and the financial education and tools available help to make saving easier and more appealing. "The fact that an employee who has a DC pension can invest in an ISA via payroll deductions makes the whole process much easier," says Webb.

However, corporate wraps do not answer all the problems that employers and pension providers are facing, says Hames. "I don't believe that the wrap, in itself, is the answer. People used to argue that offering lots of funds was the answer, now it's all about offering lots of products. Some of the tools that are being built around wraps could prove very interesting but these owe more to member self-service benefits websites than the wrap product itself."

These member self-service websites provide another valuable means of engaging with employees and encouraging saving through education and interaction, but only if the information is targeted and relevant, according to Hames.

"The key to the success of self-service websites is how they draw people in and get their interest. This is the single greatest advantage of online services but one which is often missed - their ability to interact via thoughtful and relevant emails and texts - can elicit curiosity. This can be as simple as a text confirming that contributions have gone in this month through quarterly fund valuations to a text alert on big price movements (up or down)," says Hames.

However, the drawbacks are that member websites can be limited in what they offer and if the information available is not tailored and relevant enough it can fall short. "Information must be specific, tools must be engaging and the ability to switch, increase or change personal information must be executable 24/7. To truly compel an individual to engage via the website, then member specific messages and alerts also need to be received within this portal," says Lefley.

Although an important tool, the temptation to roll out new technology and forget the reason behind it is an all too common mistake, according to Aston. "I would argue that it is relevance and clarity, rather than the delivery medium that gets the message across. The percentage of people that use these sites is still low. It's good to deliver through media that the individual prefers, but disseminating the same old tired messages via an iPad app, for example, just won't work" he says.

Technology is not the only way to reach out to employees though. One more immediate way employers could encourage saving could be to start auto-enrolling staff before legislation is introduced next year. "Employers have the opportunity to auto-enrol employees into their pension plan now and don't need to wait for the legislation to be introduced," says Webb.

Even something as simple as workplace presentations can act as a valuable tool to encourage savers and speak more directly to employees, he says. "We know that if workplace presentations are given to employees explaining the benefits of joining their employers' pension plan that many subsequently do join."

Ultimately, Jenkins says changing mindsets and perceptions will take ongoing education, better targeted relevant communication and easy to use platforms, and cannot be achieved solely by the employer or provider.

He explains: "All parties involved in the provision of pensions - including employers, trustees, providers and advisers - have a part to play in the positive portrayal of their role in providing for the future. It is important that people look forward to retirement with comfort rather than uncertainty and that they engage in saving for the long term rather than seeing another tax."

Written by Karen Gomm, a freelance journalist

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