Five points on the latest research to connect people more closely with their pensions

In response to the PPI Report published 15th February 2024

The latest pension industry report from the Pensions Policy Institute titled ‘What could effective pensions engagement look like?’ has made me question what we’re actually trying to achieve with “engagement”.

If our goal is to encourage people to understand more closely the complexities of the UK’s pension system; to monitor and amend their own investment strategies; and to chart the best course of action in retirement, then I think we are setting ourselves up to fail.

Engagement in pensions is a relatively new challenge. Defined benefit schemes (such as final salary) didn’t require much engagement because they came with a high certainty of outcome with little or no individual decision-making required. In short, if you were a member, it was done for you.

Defined contribution schemes (such as personal pensions), on the other hand, have a much lower certainty of outcome, even right up to the retirement line and, in some instances, past it while also requiring active decisions, leading to either positive or negative consequences.

Now, some people will be equipped to take those decisions but it’s a stubborn fact that many will not. Which brings me on to my five observations on the Pensions Policy Institute findings.

1. We need to be careful what actions we expect people to take as a result of greater engagement. Some will carry more risk than others.
   
   We should be encouraging members to complete basic administrative tasks, such as completing a nomination of beneficiary or tracing a lost pension as these are very unlikely to lead to anything detrimental.
   
   However, changing investments or consolidating pensions could carry greater risk and we should highlight this, so members proceed with caution and, perhaps, consider guidance or advice.
   
   
2. We need to encourage more use of guidance and/or advice services, particularly at retirement. In 2019/20 91% of people who had Pension Wise appointments felt that they were able to consider their options more thoroughly as a result of the information and guidance they had received. So that’s a positive.
   
   However, in the same year, 674,000 pensions were accessed for the first time and Pension Wise dealt with about 150,000 appointments. That suggests there is still some way to go to encourage enough people to, at least, get some guidance.
   
   
3. We need to find a way to improve the public perception of the pensions industry. According to Trafalgar House’s Trust and Confidence Index 2021, the ‘public trust score’ for the pensions industry was 4.63 out of 10. If that were a property on Airbnb, I wouldn’t be making a booking.
   

   
   This low level of trust in the pensions industry ultimately mean people are less likely to engage with the information and support provided.

4. For me, the report has emphasised importance of defaults – automatic strategies designed by trustees/providers on behalf of members - along the entire pension and retirement journey.
   
   Defaults need to do the heavy lifting for the vast majority of people and particular consideration needs to be given to how much most contribute into their auto-enrolment scheme. Many people believe the current rates have been set because they’re deemed to be sufficient when we in the industry know they’re not.
   
   The recommendations from the 2017 review of auto-enrolment have yet to be implemented and they did not cover an increase in the contribution rates.

5. The final point I’d like to make is around the spectrum of engagement and engagement personas the PPI have developed through this research.
   
   Data should be used to form a better understanding of individual circumstances, characteristics, needs and preferences so appropriate communication can be directed based on where someone sits on the engagement spectrum the PPI visualises.
   
   However, more work needs to be done before that can happen. In the meantime, we should consider whether it’s possible to allow people to opt-in to one of the engagement personas so that people self-select the type of communication they receive.
   
   The reality is that there is no “silver bullet” to instantly bring pensions alive for everyone but, as this report suggests, everyone can do something, no matter how insignificant it may seem, to help them make more sense of how they prepare for retirement, no matter how far away it may be.