Giving employees the right amount of information about pensions investment and delivering it in the most suitable way can be a tricky balancing act, says Sarah Coles
Employers wanting to communicate contract-based defined contribution (DC) pensions investment face a catch-22 situation. To get staff to make the right investment choices, they have to give them enough information. But as soon as they do that, employees are either bored into apathy or overwhelmed into inaction.
According to Hymans Robertson’s Pensions Communications Survey 2009, published last December, 63% of communications often end up in the bin. So it is not enough for employers merely to hand over a welcome pack to new joiners and then wash their hands of the matter. For communications to be effective, they need to send the right messages, in the right way, at the right time. And for that to be practical, it has to come at the right price.
To ensure communications are both read and understood, the first step is to simplify, and reduce the sheer bulk of information. Charles Cotton, reward and performance adviser at the Chartered Institute for Personnel and Development (CIPD), says: “People have so much information, they find it hard to make a decision. [Employers] need to offer it in a step process by offering the basic information and make it easy for people to find out more if they want to.”
Simple and clear language
Simplification also means revisiting the language used. According to the Hymans Robertson survey, 80% of under-35-year-olds find pensions information confusing and “full of gobbledygook”, so it needs to be expressed simply and clearly, taking a step back from industry jargon. Steve Langley, a senior associate at consultancy Mercer, says messages should include what the different kinds of investment are, and the risks and potential reward involved. They must also take members through the process of understanding the amount of risk they want to take, so they can match the fund to their own attitude and aspirations for growth.
But although simple communications may be understood easily, this does not guarantee they will be read or acted upon. For this, messages need to be made relevant to members, which means talking to people about their needs and their lives rather than about a dusty pensions product.
Helen McArthur, head of communication and engagement at Hymans Robertson, says: “Employers need to make a conscious effort to write to people as individuals, and [use phrases] like ‘this is how you will be affected’. It is about subtlety of language, to change the tone and make staff engage with the message. The difficulty is when it is drafted by people who are very technically minded. Communicators need to strike a balance between getting the technicalities right and making communications readable.”
Tailoring communications
The other way to ensure communications are relevant is to tailor them to the audience, either by personalising them to individuals or segmenting the workforce into broad age groups or categories of worker, who can be addressed with relevant messages through the kinds of media that appeal to them.
When it comes to deciding on the most suitable communication channels to use, there is no simple answer. By far the most common approach is to hand new joiners a booklet. This may suit some of the workforce, particularly those who do not have a computer or who like to go through something tangible in their own time. However, many employees are likely to be put off by a large bundle of paperwork.
Nowadays, most employers also publish information about pensions investment on their intranet. This has more appeal for computer users and younger employees, who tend to research everything, from films to holidays, online, so are familiar with this approach. The intranet can also link to useful tools, such as pensions modellers. The CIPD’s Cotton says: “Modellers can be useful in helping scheme members to work back from when they want to retire and how much they need in order to retire, through issues of risk and return, to arrive at the contributions they need to make.”
This can be part of a broader pensions portal that enables employees to do all the relevant research and even apply online.
Using online tools
But Mercer’s Langley says it is no good just putting such material and tools on the intranet and leaving employees to their own devices. “People have to be engaged before they go and use the tools,” he explains. “Some will use them a lot; others will never go near them.”
To drive employees online, organisations could send out a number of regular communications, including annual pensions statements, and regular newsletters. “Any media that gets people’s attention can be used, including SMS [text messages] or desk drops,” says Langley.
One effective alternative approach is face-to-face communications. This can be done through presentations to large groups, seminars with smaller groups, or one-to-one consultations with staff. About one-fifth of employers offer advice from a regulated independent financial adviser (IFA), but that number may be set to fall. “Previously, [employers] may have gone to a commission-based IFA,” says Cotton. “But the market is changing and they are moving to a fee structure, which represents an outlay for organisations. If [employers] want advice, [they] have to pay for it.”
Neil Gough, client services director for adviser firm Creative Benefit Solutions, says: “We work on either a commission or a fee basis, but at the moment most of our clients are focused on trying to keep the business going, so we have not had many new clients opting to pay a fee recently.”
Take care over timing
A more common approach is simply to offer staff information and education on the broader issues. And if employers are sending out information, they need to take care over the timing of communications. Langley explains: “One of the biggest issues is that an individual is told about the pension when they join [the organisation] and they are bombarded with so much information at that time that they cannot engage with long-term considerations, like the pension.
“Perhaps a few months or a year down the line is the time to communicate again, with a workshop or a face-to-face meeting at a time when they can focus on their investment decisions.”
Creative Benefit Solution’s Gough adds: “Education has to be on an ongoing basis. We offer repeat consultation visits to employees, so they can improve their understanding and ensure their investments remain appropriate to their current needs.”
As with everything else, the right approach for an organisation will ultimately also come down to cost. Langley says: “Employers have pressure on costs all the time and there is pressure on the annual management charge for contract-based schemes. We try to get the best terms so the cost of running a pension is kept to a minimum, and in that environment, employers have to be realistic about communications and prioritise. It is a balancing act.”
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How employers communicate pensions to employees
78% provide paper-based communication to joiners
62% provide some sort of face-to-face guidance
18% offer employees access to individual advice
40% of organisations do not brand their pension communication
After making initial contact, 21% leave future communications to the pensions provider
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Case study: FlightSafety lands better staff engagement
Aviation and marine training company FlightSafety International undertook a review of its pension scheme in 2008 after discovering that its group personal pension plan (GPP) was not valued by its 120 employees.
Tracey Clough, HR manager, says: “We felt that if our members did not fully understand and appreciate the benefits we provided, why have them?”
As a result of the review, the company decided to switch providers to Aegon Scottish Equitable, and bring in specialist communications from Creative Benefit Solutions.
Each scheme member was sent an information pack inviting them to a presentation with a regulated financial adviser. This was followed up by each employee being invited to a one-to-one meeting to discuss their individual situation.
“This included a pension projection to help members understand what their FlightSafety pension plan meant to them and what their total pension is likely to be at retirement, including any other pensions and state benefits,” explains Clough.
The result was greater staff engagement with the pension and investment options.
More articles on: Special report 2010: Contract-based pension investment