The great pension engagement dilemma
Do pension schemes and members have their heads in the sand?
The core problems
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It is broadly acknowledged that many DC pension scheme members don't pay enough attention to their pension. Yet they also have concerns about whether they will be able to retire in comfort. How much of a problem is this?
The negative spiral
I don’t think I’m saving enough
Don’t know
Prefer not to say
I am definitely saving enough
I am saving what I can, but I’m not sure it’s enough
27%
6%
41%
29%
24%
43%
5%
15%
3%
7%
Checking more than one a month
Checking less than once a year or never
Would you say you are currently saving enough for a comfortable retirement? (Please select the best option that applies)
Only 12% think they are definitely saving enough for a comfortable retirement
12%
36% don’t think they are saving enough to retire comfortably
36%
The rest don’t know
52%
Worryingly, those who check their pension less than once a year or not at all are far more likely to say they are not saving enough for retirement (see chart below). Yet, those who check their pensions monthly are significantly more likely to say that they are saving enough for retirement. This makes sense: individuals who check their pensions more frequently may be better informed to make decisions, or perhaps are already more informed, and therefore, are less likely to bury their heads in the sand.
Clearly there is an opportunity for the pension industry to do more to address these challenges.
52% of all respondents check their pensions once a year or less
Issue of Engagement
Retirement concerns
On average, how often, if ever, do you look at information about your pension(s)’ ongoing performance/value?
Never
Less than once a year
Once a year
Twice a year
Once every few months
Monthly
Weekly
Daily
13%
26%
11%
18%
9%
2%
Fixing the engagement problem
Is digital the solution?
Fear of change
Introduction: The great engagement gap
When it comes to DC members engaging with their pensions and DC schemes encouraging them to do so, many currently have their heads buried in the sand. It is widely known that DC pension scheme members don't pay enough attention to their pensions, and that this is a problem for their prospective financial well-being. Pensions are a vital source of income when individuals stop working. Regularly reviewing one's pension accounts, tracking contributions, investment performance and projected income can better enable members to meet their retirement goals. Regularly reviewing pensions also empowers individuals to adapt to life's changing circumstances, such as career shifts or family changes, ensuring their retirement savings stay aligned with their evolving needs. Crucially, if members ignore their pension, they are jeopardising their future financial well-being. To better understand why many DC members are not engaging with their pension and the potential solutions, Professional Pensions surveyed DC members, DC scheme staff and trustees.
Just 6% of those checking their pensions less than once a year definitely think they are saving enough for a comfortable retirement
Survey participants
were asked
Conclusion
Section 1
Section 2
Section 3
Section 4
Appendix
Section 5
However, to solve the problem we first need to understand why it is happening.
•
Surveyed more than 100 trustees, employee benefit consultancies, finance directors and pension scheme managers.
Produced in association with Smart Pension, ‘The great pension engagement dilemma’ report explores how pension schemes can make better use of technology to encourage their members to pay attention to their pension, and ultimately ensure better financial outcomes.
Carried out a representative survey of UK adults, specifically targeting the views of those enrolled in a DC or hybrid pension scheme.
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Many DC members are having trouble making sense of pension jargon, and figuring out the quality of life their pension will afford them in retirement. 47% of surveyed members say it's difficult to understand the language of pensions, and 41% find it difficult to understand the quality of life they'll have in retirement. These challenges are particularly daunting for those who already feel they are not saving enough.
Issues particularly affect women
Issues relating to DC members’ understanding of their pensions are more prominent among women.
Summary
The research shows that DC members care about sustainability, with many wanting their employers to follow suit. However, this enthusiasm is not yet reflected in people's pensions. Issues of awareness, lack of choice, misconceptions about cost, and the impact of sustainable investing on retirement outcomes are holding members back from investing their pensions sustainably. DC schemes need to address these concerns if they aspire to convert member enthusiasm for saving the planet into sustainable investing.
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Do you find it difficult to access your pension information?
Agree
Disagree
17%
48%
Easy
Difficult
Accessibility
Financial education
Do you have difficulty understanding pension-related investment/ finance terminology?
53% of respondents identified as social grades C2DE (often referred to as working class) said they find it difficult to understand pension-related investment/finance technology. In contrast, only 44% of non ‘working class’ social grades, ABC1, respondents say they feel the same activities are difficult.
Economic class differences
Just 17% of those who feel they are saving enough find it difficult to access their pension information
Whereas 48% of members who do not think they’re saving enough find it difficult
Communication strategies are not working
Issues of education and accessibility indicate that pension schemes are facing communications challenges, and these are reflected in the research. Our survey shows that DC scheme communications aren’t benefitting everyone. Communications from DC schemes are often outdated and need to embrace technology to bring a more personalised and helpful experience to members.
Untapped potential of comms Of those who don’t think they’re saving enough, only 43% find their scheme’s communications helpful, in contrast to 68% among those who are saving enough
Blanket emails Only 12% of DC schemes have a sophisticated comms strategy – one where communications are tailored to the specific circumstances of each individual member
Lacking personalisation 35% of schemes are still sending out the same blanket communication to all members
Under-engaged 44% of DC schemes say they only send out one communication a year – hardly enough to drive engagement
Understanding quality of life
Do you find it difficult to understand the quality of life that your pension will provide at retirement?
59% of female respondents find it difficult to understand pension-related investment/finance terminology
In contrast, only 38% of male respondents find it difficult
Female respondents are 10% more likely than men to say they feel strongly that accessing their pension is too difficult
What are the barriers preventing DC members from engaging more with their pensions?
47% of those who feel they are saving enough have difficulty understanding pension-related terminology
47%
41% of those who feel they are saving enough don't know the quality of life that their pension will provide them
56% of those who do not think they’re saving enough feel the same
56%
This rises to 55% for those who do not think they’re saving enough
55%
We asked DC members
Previous
Is digital the solution
With education, accessibility and communication already identified as issues that DC schemes need to address, digital apps offer a convincing solution. Apps offer a user-friendly, personalised experience that can help educate and inform groups that are often intimidated by their pension.
The app revolution
The biggest preference for a digital pension app was from DC members aged 25-34
74%
Future - proof
Over half of all DC members (54%) say they would prefer to access their pension via an app
Mobile apps
54%
49% of female respondents strongly agree that they would be more likely to engage with their pension online or via an app if it was quick and easy to use. For men, 39% strongly agree
Popular among women
49%
Our survey results show that 80% of members would engage with their pension more via a digital app if it could help them understand their pension better and was quick and easy to use
Education
80%
25-35
35-44
45-54
55+
Age of respondents
63%
59%
28%
Percentage of DC members preferring to access information via mobile app
47% of DC schemes report issues with returned posted mail
30% of DC schemes say that they still make inappropriate contact attempts, such as writing to a deceased member
60% of DC schemes say that the quality of their data is having a negative effect on member engagement
If the benefits of a mobile app are clear, why isn’t the app revolution here?
DC schemes are often bogged down with issues of data quality and operational issues that need to be remedied before they can implement a digital app.
To have clean and reliable data, DC schemes need modern administration solutions. This is an area where cloud technology can help by offering a single, secure, real-time central source when it comes to pension data. A modern pension platform achieves all of these pension scheme essentials.
Cloud technology benefits
54% of schemes say they would like an administration solution to provide faster improvements to their user experience
User experience
58% say they would like an administration solution to provide security of member data
Secure data
50% say they would like it to facilitate faster development of new features
New features
48% want to use an administration solution to ease regulatory compliance
Compliance
However, while DC schemes have identified a lot of benefits to improving their administration solutions by harnessing technologies such as the cloud, over half say they are not open to changing their provider…
Resistance to change provider
Are not open to changing their provider
51%
Younger audiences show a particularly high understanding and use of apps. However, contrary to stereotypes, this enthusiasm spreads across all surveyed age groups, with almost 1 in 3 respondents over the age of 50 also preferring to access information about their pension via an app.
Widespread appeal
Why?
Mail issues
Inappropriate comms
Data quality
The core problem
Schemes often find themselves in a cycle where they underestimate the appetite for technological change. They believe there is little member demand for it, but also recognise that not implementing change will bring member disengagement. A self-fulfilling prophecy.
We all have a role to play in creating a greener future, and choosing sustainable pension options is a meaningful way to achieve our goals. The sooner we act, the better it will be for people’s retirements and the planet, too.
Paul Bucksey, Chief Investment Officer at Smart Pension
A cycle of underestimating demand
73% of DC schemes say they would use technology to help improve engagement and access for members if there was proven member demand for a digital pension app
73%
Yet, 52% of DC schemes say the main consequence of not providing an app would be member disengagement
51% of DC schemes say low member demand is still a barrier for developing an app
An issue of cost
39% of DC schemes say the main barrier to improving the quality of member data is the perceived short-term cost vs long-term benefit
54% put cost in their top three hurdles to adopting a digital pension solution
52% say they do not have adequate budget to install the changes needed to improve overall data and pension scheme engagement
The message is clear: DC schemes have a preconception that there is a significant cost to improving member engagement, data and user experience – but in reality this is not the case.
DC schemes can negotiate with their existing pension provider to use more modern and efficient platforms. The up-front cost of changing provider need not be significant, and any such move can in fact reduce costs due to added efficiencies and improved user experience.
Change is inevitable
Will the need for change be taken out of DC schemes' control?
Change for many schemes needs to be forced. The pensions dashboard is a digital platform that will allow individuals to view their pensions information from different providers in one place. Despite the deadline being pushed, trustees need to start preparing for it. Having accessible and secure data is essential and often requires technology change and/or a new administration provider to implement.
Introduction of pensions dashboard
62%
Government regulation/new compliance initiatives
What events would prompt a scheme to get on top of its data?
By making information more easily available, trustees can make important decisions more efficiently. This also allows them to respond more quickly to regulatory requirements or requests, and frees up more time to address complex issues.
Streamlining scheme governance
Thinking differently about how technology can improve back-office operations can cut costs and save time in a variety of ways. For instance, automating manual processes can save money and reduce the risk of errors, as well as freeing up people to address more complicated problems. It can improve the consistency of reporting to individual members and to trustees.
Shaking up operational processes
Personalised statements based on up to date information can show members their current position and provide forecasts of how much money they are likely to have in retirement. The vast majority (92%) of respondents to our survey agree that tailoring communications in this way would help to drive engagement. Artificial intelligence technology can assess member behaviour and circumstances and adapt the information and data on offer accordingly.
Increasing communication and education to help members plan/save for retirement
Digital identification techniques such as e-signatures and digital passes can be used to verify user identities without the need for paperwork, while distributed ledger technology – also known as blockchain – is being tested for its efficacy regarding the security of online transactions.
Keeping members and pensions safe
More than half – 57% – of survey respondents say an increasing number of members want more visibility over their pension contributions and how these are invested. Through access to accurate, relevant information presented clearly with outcomes in mind, savers can improve their understanding of their retirement pots and adjust their behaviours accordingly.
Making pensions more meaningful
Cost does not need to be a barrier
The sooner schemes address the inevitable, the better.
DC schemes risk falling behind
51% of DC schemes continue to hold at least some member records non-electronically and aren’t taking the digitisation of data seriously enough. Just 4% of DC schemes have begun to digitise the information they hold in preparation for pensions dashboards. Falling behind isn’t riskless. Pension fraud is on the rise and with fraud losses in the UK equating to £190bn each year, it is essential that DC schemes digitise their offering with secure digital solutions.
Delaying won’t help
36% of DC schemes see general technology migration as one of the key risks associated with their scheme’s administrative platform. The longer schemes postpone change, the tighter their deadlines, the bigger the change they need to make, and ultimately the greater their technology migration risk becomes.
If members don’t engage with their pension, they are not in control of their retirement. If they are not in control of their retirement, they cannot address any looming income shortfall. This can lead to a spiral where members continue to ignore their pensions and repeat the negative cycle – often too late to have enough time to correct their course. This needs to change, and technology can be the answer.
1. Digital demand Barriers such as a lack of engagement hinder progress in improving retirement outcomes, but solutions digital options, like apps, can help. For instance, making a mobile-friendly app can help DC members consume information through digital channels.
Ironically, not only do members demand modern technology, it can reduce costs for pension schemes too. These savings can be redirected to activities which could boost member returns, like more sophisticated investments. Additionally, modern technology can deliver greater member engagement, reduce costs through removal of errors and risk and ensure greater data security. Crucially, the benefits of cloud technology will only grow in urgency and scale as time progresses. Schemes should not wait around for regulation or the pensions dashboard to be the instigator of change. The question pension schemes need to ask themselves shouldn’t be whether it is worth harnessing technology to improve their offering for members; it should be whether they can afford to ignore the benefits of changing their service provider, while the industry modernises and leaves them behind.
£190bn
2. Accessible education Members require accessible education that allows them to better understand and interact with their pension. To achieve this DC schemes’ communication needs to be frequent and jargon-free.
3. A false perception of cost Our results show that schemes are aware of the issues facing their members and potential solutions, but hold themselves back through concerns over perceived costs.
1. Source: ‘TPR research
Yearly losses to pension fraud in the UK
1
Why aren’t more schemes implementing technological change?
This needs to change, and technology can be the answer.
If they are not in control of their retirement, they cannot address any looming income shortfall. This can lead to a spiral where members continue to ignore their pensions and repeat the negative cycle – often too late to have enough time to correct their course.
Ironically, not only do members demand modern technology, it can reduce costs for pension schemes too. These savings can be redirected to activities which could boost member returns, like more sophisticated investments. Additionally, modern technology can deliver greater member engagement, reduce costs through removal of errors and risk and ensure greater data security. Crucially, the benefits of cloud technology will only grow in urgency and scale as time progresses. Schemes should not wait around for regulation or the pensions dashboard to be the instigator of change.
1. Digital demand Barriers such as a lack of engagement hinder progress in improving retirement outcomes, but digital solution options, like apps, can help. For instance, making a mobile-friendly app can help DC members consume information through digital channels.
2. Accessible education Members require accessible education that allows them to better understand and interact with their pension. To achieve this DC schemes’ communication needs to be useful, more frequent and jargon-free.
If members don’t engage with their pension, they are not in control of their retirement.
The question pension schemes need to ask themselves shouldn’t be whether it is worth harnessing technology to improve their offering for members; it should be whether they can afford to ignore the benefits of changing their service provider, while the industry modernises and leaves them behind.
Over a third of respondents say they manage a scheme that is less than £100 million in total size.
This report is based on the findings of two surveys. Scheme survey The first survey was sent to a sample of Professional Pensions readers who work with Defined Contribution, hybrid or AVC pension schemes in a variety of roles (see graph below). 103 respondents completed this survey.
Member survey The second survey was sent to a nationally representative sample of UK adults, and specifically targeted the views of those who are enrolled in a DC or hybrid pension scheme. 669 such members answered this survey.
What is the total size of your DC scheme's assets under management?
Professional trustee
Financial director
Benefits director
Human resources director
Pension scheme manager
Retired
12
Please select your main role:
Employee benefits consultant
Other
5
2
28
6
19
29
Which type(s) of scheme do you act as trustee for?
Defined contribution single employer
Defined contribution group personal pension
Defined contribution master trust
Hybrid
AVC scheme (Aditional Voluntary Contribution)
0%
10%
20%
30%
40%
NEXT
1/2
PREV
38.3%
3.3%
6.7%
11.7%
13.3%
Less than £100 million
£100 million to £250 million
£250 to £500 million
£500 million to £750 million
£750 to £1 billion
£1 billion or more
Unsure
You may select more than one option
