Good advice alone will not get the

Too many employees are not joining decent company pension schemes and this is proving a major headache for the pensions industry and the government, discusses Jo Cann of AXA.

Before 1988, employers could make joining the company pension scheme a condition of employment.

Given the importance of a private pension to top-up state benefits, we need to understand what influences the behaviour of individuals when faced with the decision of whether to join their company scheme. Consistently, research demonstrates that financial knowledge amongst UK consumers must be raised.

This challenge should not be underestimated. The UK is a highly sophisticated financial market, with a vast range of products offered by banks, building societies, insurance companies and fund managers. For good measure, our tax, state pension, and regulatory systems are highly complex.

AXA has worked with leading experts in researching financial behaviour. The objectives were to broaden our understanding of how employees behave when faced with major financial decisions. We then used this knowledge to enhance our worksite marketing, employee communications and enrolment processes.

Turning good intentions into actions
Employees do not join their company pension scheme for reasons such as:

• Inertia, some are simply not prepared to spare the time to complete the process
• Concerns about the risk of losing their money • Too much choice and complex issues they do not understand
• A preference to spend disposable income on shortterm priorities.

Ironically, those who do not join, usually recognise that state pensions alone, will not provide an adequate income in retirement, but still they are not stirred into action.

So, we must try and create the triggers for action. Last year, AXA sponsored an experiment run by the University of Warwick. The aim was to understand the extent to which good advice is understood and then acted upon. A cross-section of a thousand people took part in a scenario where they received financial advice.

The results demonstrated a number of points about participant behaviour. Giving information alone is not enough to motivate actions. Persuasion is required as well as advice. Further, the type of person both giving and receiving the advice will influence whether actions are taken.

With regard to pension scheme membership, we can translate these research findings into practical actions in our worksite marketing.

The sooner people are allowed to take action the more likely they are to act. We must ensure the employers agree to allow sufficient time at worksite meetings for employees to ask questions and complete joining forms.

The easier it is to take action, the more likely people will act. Forms must be simple and tailored to the needs and understanding of the individual. Known data should be pre-populated so that the individual only needs to check and sign the form.

The more people are persuaded to take action, the more likely they will act. Presenters must have the knowledge, skills and time to answer questions and deal with any concerns. A personal endorsement in support of joining the scheme, from an individual respected by attendees can be very powerful in getting people to act.

Pension providers need to continually develop their propositions to turn good employee intentions into actions to get their pension pot started.