Need to know:
- There are plenty of benefits to getting employees engaged with their pensions investments, but employers should to be clear about what behaviour they want to encourage.
- Investments can be made meaningful by using layman's terms to explain the funds, and what they mean for employees.
- Bringing environmental, social, and corporate governance (ESG) into the conversation can relate investment to supporting responsible and sustainable objectives.
Employers do not have to have much say in how employees' pension savings are invested. There are the regulatory basics: employers need to tell them they are saving into a pension scheme and supply them with basic information about their investments. However, there is no regulatory prerogative to bring the subject to life.
Nevertheless, there are many areas of benefits in which it can be helpful for the employer to go beyond the statutory minimum. So, should pensions education be one of them?
There are many reasons why communicating about these matters can work well for an employer, but it is important to think carefully first.
Starting points engagement
Before an employer starts building its pension investment communication strategy, it should reflect on some important points.
First, the organisation will need to make sure it is getting the basics right. Many people struggle to get to grips with their finances, so building the foundations of financial literacy makes sense first.
Next, an employer should reflect on why it wants to build up its pensions communications, says Emma Roberts, principal DC consultant at Mercer.
“Investment is a really hard subject for individuals to get their head around," she explains. "Before an organisation goes out and does presentations or engagement around investments, [it] should take a step back and ask, ‘Why am I doing this?’”
A next step should be to check in with employees. Employers could ask pension scheme members what they want to know about investments, suggests Simon Grover, director at Quietroom.
Are they happy with the information they receive? If so, it is worth considering whether anything really needs to change. Are some of their questions going unanswered or would they like to know more? If yes, there is a rationale for making a change.
Employers could test the waters by putting what they plan to communicate in front of a few people, and measuring how they respond and what questions it brings up for them.
Grover says: “Test things out and make sure you are not assuming knowledge. Every time we do that, we learn something interesting that we weren’t expecting.”
Communicating about pension investments is not risk-free. By engaging with employees and helping them to understand the scheme they are invested in, employers risk staff deciding they do not want to be part of a it and opting out, especially in the current cost-of-living crisis, where drawing attention to these monthly outgoings could lead some to question whether they would rather have the cash now.
To counter that argument, if people understand that this is an investment, and what that means for their future finances, they will be armed with context. Then, they may be less inclined to panic when markets get turbulent, as they did in 2022.
The benefits of communicating
Talking about investment, when it is done well, is a way to bring pensions to life.
Becky O’Connor, VP of public affairs at PensionBee, says: “Engagement is hugely important. We have a huge pensions problem in this country and auto-enrolment hasn't solved it. It's been a very important step, but 8% minimum contributions aren’t enough; 12% minimum contributions aren't actually enough either, but it would be great if we could get to that point.
"To inspire and motivate people and help them understand the benefit of a pension, and what an incredible employee benefit it really is, you need engagement.”
When presenting investment information to members, it is vital to go beyond the more generic fund documents that investment managers produce.
Kirsty Moffat, head of DC communications and engagement at Hymans Robertson, says: “Fund factsheets are often a really difficult read. If I didn't know anything about investments, they would be really difficult to navigate.”
A scheme’s investments can be made meaningful for members by explaining the different funds in layman’s terms, and what they mean for them. In addition, it is important to present the information attractively, says O’Connor.
The right mindset
Using obscure jargon can have unintended consequences, so employers should choose the words carefully, says Moffat.
“The problem with the pensions industry is that we all use this jargon that is very inaccessible to the majority of people," she explains. "On a day-to-day basis with my colleagues, I'll talk about a default investment strategy. But actually, the average man on the street will think, ‘a default, oh my gosh, I might default on a loan and that's a really bad thing.’”
Environmental, social, and corporate governance (ESG) is also a way of engaging people in their pension.
Grover explains: “When [we] talk about ESG, [we] are telling people their pensions are invested in growing the UK economy and other economies around the world, supporting responsible and sustainable objectives and net zero. Bringing that to life often gets people really excited.”
Once people are proud of their investments, they are in the right mindset to make good decisions: to continue to save into their pension and, when the time comes, to trust their pension scheme to help them make decisions about retirement.
Read more:
Ingenuity starts with the basics of pension scheme investment communication
