As the pensions industry continues to undergo a series of reforms, Laura Blows explores why the time is now right to improve its reputation and how this can be achieved
Speaking at the NAPF annual conference in October, Pensions Minister Steve Webb said: “Let us make 2013 the year that the tide turned and the bad habits of the past were put behind us.” However, in order for these bad habits to be put behind us, they are first exposed to public airing, mixing with positive news stories in the public domain, such as the ‘triple lock’ state pension guarantee and the successful start of auto-enrolment. So has this recent barrage of messages had an impact on the image of pensions?
New ‘scandals’
Looking at the papers, it seems to be business as usual. Horror story headlines featuring terms such as ‘scandal’, ’disaster’ and ‘rip-off’ continue to be the order of the day. As AHC chief business development officer Karen Partridge says: “If you Google ‘Daily Express pensions disaster’ you get a raft of results declaring various pensions disasters and crises, year on year.”
The past year was no exception. Annuities were in the spotlight for the latter part of 2013, with the ABI in August highlighting the differences in annuity rates between providers and the Financial Services Consumer Panel calling for regulatory and government reform to counter the growing shift towards purchasing annuities via ‘non-advice’ routes. The resultant headlines in the national media include ‘millions hit by scandal of pensions rip-off’, from the Daily Express, and ‘elderly savers being fleeced by pension sharks when they retire: Middlemen are making a fortune on transfer fees for annuities’, from the Daily Mail.
Television also got in on the action, with Channel 4 broadcasting a Dispatches programme, ‘What’s your pension really worth?’ in November. It featured Webb accusing insurance companies of “taking advantage” and “making excess profits” from savers purchasing annuities, and pensions policy expert Ros Altmann warning that the “mis-selling of annuities could be at least as big as the mis-selling of payment protection insurance”.
DC schemes’ legacy charges are also a cause for concern. The OFT in September reported that £30 billion of DC assets may be left in schemes that are poor value for money and resulted in a DWP consultation into capping charges. This was reported as ‘Pensions: ‘Rip-off’ charges targeted by government’, by Sky News.
A question of trust
As a result of these types of headlines, plus historical disasters still in the public memory, pensions has a ‘bad name’, “which is not totally undeserved given all the scandals”, says Altmann. “The industry has not covered itself in glory.”
Like Minds communication consultant Trevor Rutter agrees that pensions is “something of a damaged brand”.
“We have not been whiter than white as an industry, so to an extent we are our own worst enemy and have not helped ourselves,” he adds.
The result is a “strange paradox”, JLT director Martin Freeman finds, “as people really value their pensions, to the extent of going on strike if attempts are made to change them, yet they also do not trust pensions”.
This mistrust can turn people against pensions and look to other forms of retirement saving, such as relying on property.
According to Altmann, there have been several indicators of people leaving pensions. She gives ISAs as an example, where “the flows of money into ISAs have been larger than pensions during the past couple of years”.
More worryingly, a dislike of pensions can result in people making no retirement provision. However, this concern should subside as auto-enrolment increases the number of people saving into a pension. The initial low opt-out rates reported was an enjoyable change from the negative headlines, but we should not extrapolate this out to suggest that people trust pensions, Freeman warns.
“It may simply mean that people do not mistrust pensions so greatly that they make the decision to opt out”, he explains.
The power of words
With so many more individuals being introduced to pensions, now seems an opportune time to address the image problem.
According to Quietroom co-founder Vincent Franklin, people tend to feel guilty for their lack of understanding with pensions. As guilt is a negative emotion, people then feel negatively about the industry. Therefore increasing knowledge and understanding can be the first step to an improved reputation.
Before the start of auto-enrolment, AHC conducted research into people’s understanding of pensions.
“We asked 50 people what they thought about pensions. Out of the 50, 49 people said that pensions were about old people. It bore no relation to their life now,” Partridge says.
Whether to use the word ‘pension’ at all has been subject to continual debate.
“There is something about the terminology,” Partridge says. “‘Pensions’ is so close to ‘pensioner’, but in Australia, they use the word ‘super’ for pensions, which has much more positive connotations.”
Altmann is unequivocal that the word should be abolished. “It should only be used with regards to the state pension. A more positive name may help rehabilitate retirement savings.”
However, Rutter is sceptical of the benefits of a rename. “We have seen people try to think up alternatives to the word ‘pension’ but I do not think it is as simple as to improve the reputation simply by changing the name. There is no one-off cure.”
‘Pension’ is not the only less-than-endearing term within the industry. Salary sacrifice is a harder sell thanks to the negative tone of the phrase. In contrast the ‘save more tomorrow’ approach is more incentivising than telling people to pay higher contributions.
According to Franklin, the industry needs to appreciate that most people aren’t interested in how pensions work. “Talking in ‘real’ terms instead of abstract concepts, such as ‘your £2,000 has grown to £7,000 through investment, employer contributions and tax relief’, creates a more positive conversation”, he explains.
Rutter agrees that the industry needs to talk about pensions in a way that is meaningful to people, such as highlighting how it can help fund a certain lifestyle in retirement, instead of describing the product features. As he explains: “No one sells a car by showing the car manual.”
The way these messages are shown should also be addressed, for instance by using images to entice people to look at the communication in the first place. The delivery should also be determined by individuals’ habits. Partridge gives the example that “by the end of 2014 it is expected that 50 per cent of online services will be accessed through a mobile. How many in pensions will think about their website being increasingly accessed through mobiles? We have to think about how people live their life now.”
The industry’s overall tone is summarised by Altmann as “lecturing and hectoring”, instead of being more user friendly.
“Using the ‘carrot or stick’ analogy, within pensions it’s all stick and no carrot. There are employer contributions to help incentivise people into a workplace pension, but that’s from the employer, not the industry,” she says.
Instead, Altmann would like to see more of a word rarely attributed to the industry: fun. “Putting some fun into pensions would be a nice change. For instance, putting something akin to a lottery into it, so people would think there is a possibility that their pension could help them now.”
A changing mindset
According to Freeman, moving away from ‘stick’ to ‘carrot’ will become increasingly necessary as auto-enrolment takes hold.
“I do not think people understood what a seismic shift auto-enrolment would cause, making the pensions industry part of the national infrastructure. People are being given to us through enrolment, in some cases without them really being aware of it, and that results in a lot more responsibility,” he says.
Therefore a shift towards a ‘member first’ way of thinking is required. Freeman gives the example of the industry’s response to Webb’s comments that pensioners should be able to regularly switch annuities.
He explains: “As an industry we were saying that Webb’s proposal is not possible. I’m not saying that this is right or wrong, but the instant reaction was dismissive. But from a consumer perspective the ability to change annuities would make a huge difference, so perhaps the first response should be to say ‘how can we make this work?’ Maybe the problems are too great but to instantly say ‘that it is too hard’ is indicative of an industry that says ‘this is how things are done and the consumer has to fit in with that’.”
Altmann agrees the industry is too inflexible, which people dislike. She therefore feels that early access to retirement savings could help to improve pensions’ image.
“Most people know that they need to save for their future but they do not like the product or the mechanism. With pensions there is inflexibility on the way in, as the contributions are locked up, and on the way out, as at retirement the money gets locked into an annuity. However with ISAs people can spend the money tomorrow if they want, so maybe something in the middle is needed,” she says.
However, changing mindsets takes time, and the pensions industry is notoriously slow-moving. But according to Freeman, this should not be judged too harshly. He gives the example of annuities, “which people may criticise, but the government has not had to bail out annuity firms. They have kept their promise and in a promise industry that is important. So there is a reason not to rush into change.”
Despite this, a number of reforms have been taking place throughout the pensions world, which should help to improve the industry’s reputation as the efforts made to weed out bad habits and effectively engage with people’s needs become recognised.
This has transpired in the NAPF’s Workplace Pensions Survey in October. It found that confidence in pensions compared to other forms of retirement saving has risen significantly over the past 12 months, though still negative, from -17 to -2. This is the highest score since 2010, with 44 per cent of employees now very or quite confident about pensions. According to the NAPF, this could be attributed to auto-enrolment reforms, increased awareness about pensions and government work to simplify the state pension.
While this is undoubtedly good news, our focus shouldn’t necessarily be diverted to just building on this confidence increase. As Franklin says: “The industry should not be worried about its reputation. It should just be worried about looking after the interests of its pension scheme members, and then the reputation should look after itself.”
Laura Blows is the editor of Pensions Age
