Pension schemes must make communications a priority – both now and once the Covid-19 pandemic has passed, writes Sara Benwell
Amidst the concerns about decreased wages, rising personal debt and access to government help, pensions have taken something of a back seat for many consumers during the Covid-19 crisis. This is completely understandable – but the impact for the British public could be severe.
For many, contributions have dropped due to decreased ‘furlough’ wages or stopped entirely due to redundancy. It is not inconceivable that previously engaged savers may choose to opt out of auto-enrolment as other financial worries become more pressing.
Kate Smith, head of pensions at Aegon, says: “While [the furlough] arrangement was designed to protect jobs, from a pensions perspective it only covers the employer auto-enrolment minimum contribution. Some employers previously paying more than the auto-enrolment minimum will have been forced to cut back their contributions to reduce costs.
“As a result, pension providers and schemes will need to focus on their engagement strategies more than ever, developing more personalised communications and calls to action. Ultimately, pension savers need to be protected from making hasty decisions that they live to regret.”
Looking beyond the pandemic, schemes will need to think carefully about how to re-engage those people who may have opted out or lost focus on retirement savings. In the short term, if members opted out when furloughed, schemes can remind them to consider opting back in rather than waiting for the next triennial AE renewal.
Lynda Whitney, partner at Aon, says: “I challenge DC schemes to think about what they want improved engagement to achieve and then build their plans around that.
“If we start from a pure pensions perspective of ‘You should catch up on missed pension contributions’ we will not build that important trust. We will still need to set pensions in the wider financial position of an individual.
“For some the step up in pay from a furloughed wage to a full wage will mean they will have scope to save more, for others they will first need help to manage the short-term debt they built up.”
Life is a rollercoaster
The first three months of 2020 saw the FTSE 100 suffering its largest fall in 33 years. Trust in the pensions system may be decimated as people see their savings plummeting in volatile stock markets without really understanding why. Research from Scottish Widows found that 70% of members did not even know that their money was invested in the first place.
Pete Glancy, head of pension policy at Scottish Widows, says: “This is a crucial moment to be engaging with savers. First and foremost, there is a need for education around market volatility and the stock market more generally. Short-term ups and downs are to be expected and are a reminder to keep a long-term view on investments where possible.”
Aon’s Witney adds: “We will need to take care when the next benefit statement is issued that stock market volatility does not discourage savings. If you normally have a 31 March or 6 April benefit statement date, consider setting those figures in a longer-term context: for example, even with the falls is there more money in their pot than the member contributed?
“In the medium term, you can consider what actions you want members to take and where more responsibility can be taken by the scheme. For example, would the trustee selecting a more dynamic investment strategy rather than traditional lifestyling help with the next period of volatility?”
Final or career average pension scheme members are not immune to stock market woes either. Figures in national press headlines are showing the stark realities of defined benefit scheme funding, and people are naturally worried. Since the start of the year, the aggregate deficit figure has surged by over £100 billion. The combined deficit of DB schemes in deficit is now a staggering £254.1 billion. Such figures may well give scheme members the jitters, and some plans will see a rise in pension transfer requests.
While the Pensions Protection Fund should provide reassurance, many people are unaware that it exists or of the protection it offers. There are also unanswered questions about what a dip in salary due to furlough might mean for a career average member’s payouts.
James Riley, president of the Society of Pension Professionals, explains: “What is now needed is honesty and education. Schemes need to communicate with members so they understand the position they and their scheme are in. Without knowing the issues members can’t make the right decisions and without this you simply can’t build trust.
“One of the key issues defined benefit pensions schemes will face is how they balance supporting the sponsor in the short term with the need to fund the pension scheme. This is a delicate judgment and a vital one to get right if we are to maintain trust in the pension system.”
Schemes also must think about segmenting communications and focusing on those people who need it most. In particular, this means members who are just about to retire or who have already gone into drawdown. These savers are likely to bear the brunt of stock market jitters, and financial awareness and advice is more important than ever. This is doubly true as regulators warn that criminals are doubling down efforts to relieve people of their hard-earned savings.
Donna Walsh, Head of Proposition Deployment at Standard Life, says: “We focused our support on two distinct categories of scheme members – support for those who have a decade or more to go before retirement, and for those who are only a few years away from retirement or at retirement.”
Let’s get digital
It’s hard to imagine a trustee or IGC committee that hasn’t given some thought to member engagement in recent years, but the Covid-19 pandemic has shone a light on the importance of modern, accessible, digital communication programmes.
Some providers are already on the front foot. Scottish Widows has been letting scheme members who also bank with Halifax, Bank of Scotland and Lloyds see their pensions live for some time now. As a result, the provider has seen member engagement and awareness increase. From this starting point, Scottish Widows has been able to launch specific coronavirus initiatives.
Glancy says: “In response to the Covid crisis, we’ve promoted video content which helps explain the volatile nature of investments, and that peaks and troughs balance themselves out over time. We have had positive feedback and worked with very low levels of concern expressed by scheme members and very little inappropriate action being taken by scheme members.”
Standard Life is another pensions provider that has embraced digitalisation. The provider has added a new Covid-19 section to its Money Plus site where articles cover topics such as ‘I’m worried about the current situation – should I sell my investments?’. It is also running a series of webinars with a focus on the impact of the virus.
Walsh says: “We developed a dedicated page on our digital platforms, listened to client and member concerns, and published FAQs with responses to the most burning questions.
“A particularly important example of this support [is] the simple steps we’ve encouraged members to take in protecting themselves against the potential rise in scams across the market during these times. We’ve shared these steps and other helpful support through our dedicated Covid-19 online hub.”
While providers have been quick off the mark in digitalising their communications, there is some concern that schemes may be lagging behind.
Aegon’s Smith says: “Pension providers have led the paperless revolution, by increasingly engaging with pension savers online. Savers can already access their own pension online, carry out transactions online, use online tools, personalised video summaries and webchat. These developments will accelerate and become increasingly personalised.
“Pension schemes should be looking to invest in their members and adopt similar engagement tactics tailored for their membership.”
Riley adds: “The pandemic has been a terrible human tragedy, but it has also taught us a few things: almost anything can be done remotely, and people are far more able to engage electronically than we gave them credit for.
“The core of pension scheme communications, particularly for defined benefit pension schemes, has typically remained resolutely paper-based during the digital revolution. The pandemic could be the event that finally convinces pension schemes to move to a more digital engagement strategy.”
What a wonderful world
One major repercussion of the spread of the virus is that people are scrutinising big corporates and their response to the crisis. In simple terms, this means distancing themselves from those companies that have treated employees and consumers poorly, and showing loyalty to those that have strived for positive action. From a pensions perspective, this interest in company values may well spread into a renewed focus on ESG.
The SPP’s Riley explains: “Making progress on ESG will be important. While schemes are now required to have a policy around ESG, a recent survey of Society of Pension Professionals members showed that little changes have currently been made in practice.
“Eight-five per cent of respondents said that although there is genuine interest in ESG no changes to portfolios have yet been made or that they are seeing most clients treating it as a tick-box exercise. I expect this to change as a result of the pandemic.
“Corporate behaviour… will live long in the collective memory. As consumers, the public is likely to increasingly expect responsible corporate behaviour. As members they will expect better ESG actions from pension schemes too.”
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