The focus on the topic of engagement, meaning informing employees to encourage positive action, in retirement plans has increased recently. Despite the success of auto-enrolment in getting people to save, many are not contributing enough to ensure an adequate income in later life. Additionally, the pension freedoms mean that savers face complex decisions closer to retirement. It is widely believed that engagement could overcome these issues.
However, there are significant challenges around engagement, not least in assuming that knowing about retirement plans leads to saving. Recent research (Individual pension decision-making in a financialised landscape: a typology of everyday approaches, Hayley James, published March 2020, and Can’t save or won’t save: financial resilience and discretionary retirement saving among British adults in their thirties and forties, Ellie Suh, April 2021) demonstrates barriers and enablers to saving that go beyond measurable factors like financial literacy or income, to incorporate social and cultural influences. Similar influences may play out in decisions at retirement, which could undermine the potential for solutions such as advice and the pensions dashboard to assist with decisions. Gillian Tett, editor-at-large of the Financial Times, recently argued that the finance industry needs to take more notice of behaviours often dismissed as irrational to understand and work with such patterns.
This disparity between expectations and lived experience of saving is something that needs to be addressed across the policy landscape. It is therefore perhaps difficult to see what employers should do. I suggest there are two areas that could be fruitfully explored. First, understanding that groups of employees engage with retirement saving in different ways is especially important in the face of gender inequalities, where women often face specific barriers to saving. Moving away from one-size-fits-all schemes could result in solutions which work with enablers to saving. An easy win could be tailoring engagement communications to promotions or pay increases, or life events like home ownership or parenthood, which have been identified as triggers for increasing saving.
Second, many people feel that retirement plans are an unknown black box, which makes them unsure about saving. While not a panacea, considerations of sustainable and responsible investing may have positive impacts on trust and engagement. Campaigns such as Make My Money Matter encourage individuals to make responsible decisions about their pensions, yet employers ultimately determine the scheme which facilitates or restricts these choices. Employers should consider what they can do to further transparency around investment by working with financial providers.
Developments in these areas could contribute to resolving the experience gap, as well as having a positive impact on retirement outcomes for employees.
Dr Hayley James is a post-doc researcher at University College Dublin