It is a bad idea to try to engage staff in their pension pots, said experts at the National Association of Pension Funds Investment Conference 2013, held in Edinburgh.
Employers and pensions professionals running defined contribution (DC) contract-based pensions schemes, such as group personal pensions (GPPs) and stakeholder pensions, should reconsider what, if anything, they tell employees about their default fund’s pension investments.
Morten Nilsson, chief executive officer of Now:Pensions (pictured), said: “When we start to ask people about risk appetite [with regards to pension investments] we lose their engagement in the pension. Then you cannot communicate any more to members.”
Jan Snippe, head of Dimensional SmartNest, took the debate a step further stating that engaging employees in the pension investment choices and investment growth could be a bad idea. “Sometimes when people become too engaged they do unwise things,” he said.
Instead employers and pension experts need to look to themselves to provide good investment outcomes for pension scheme members. “We should come up with solutions that do not rely on member engagement,” added Snippe.
Given the volatility inherent in most pensions savings, Brian Henderson, a partner in Mercer’s investment division, advised that annual [pension] benefits statements should not focus on the pot a member has built up, but rather focus on what the member is on track to earn as a pension in the future. He added: “Benefits statements focus on the pot and not the end game, this needs to change.”
Snippe agreed. “The main thing is to make people focus on goals and not on investments. They should focus on what they ultimately need and what is the minimum they need.
“We should stop focusing on the means and start focusing on the ends.”
However, Nilsson pointed out that this would be the wrong tack to take for staff new to pensions, especially those with very low contributions, such as the current 2% minimum under auto-enrolment, going into their scheme.
“With auto-enrolment, people are contributing 2%. If we start focusing on outcomes they will say ‘why bother?’. So with them we need to focus on savings not outcomes,” said Nilsson.
“We need to focus on building savings culture first.”
