Communicating pensions to the millions of newly auto-enrolled savers is one of the greatest challenges of the entire reform programme. Pam Atherton reports
For corporate pensions intermediaries that means a root and branch overhaul of their approach to pension communication strategies.
Delegates at the Corporate Adviser Auto-enrolment: An Entirely New Pensions Communication Challenge event, hosted in partnership with Standard Life, felt the profile of many of the new pension savers, namely lower paid and financially unsophisticated, but increasingly technically able meant that the use of social media, such as Facebook, smart phones and apps would play an important role, particularly for younger employees.
But segmentation of the workforce will be essential as communication via social media would not be acceptable to all. While recognising the value of Facebook for certain employees, Alex Thurley-Ratcliff of Shilling Communications said: “You’ve got to know that it is actually going to work and is worth the investment. The US Teachers Pension Scheme (TIAA-Cref) has a Facebook page with 26,000 members, but that’s from a total membership of 3.5 million members. When a client asks whether they should set up a Facebook page, I tell them it will cost £25,000 a year to maintain.”
Sean McSweeney, principal consultant online and flex at AWD Chase de Vere said that for many clients, he sends an email, ecard or some other electronic communication once a month because for many, this is the only way to get to them.
He said: “I’ve set up a Facebook page for a network of 500 hairdressing salons because they didn’t have PCs in the salons. At the moment, there’s no pension for the staff, but they have voluntary benefits and discounts. We saw that the girls use their iphones when they’re not with clients and that will continue, so we’ve got to be able to tap into that.”
Participants agreed that the use of Facebook and smart phones might be limited as they thought few people would go to either channel to look at a pensions statement as these are perceived as arenas where fun things happen. The message would therefore need to be wrapped up in something else.
Iain Fox, director at Fidelius said: “That’s the whole difficulty with pensions. You’ve got to show there’s something in it for them. It’s trying to get that message across, whether it’s through social media or anything else.”
For other segments of the market, paper-based communications may still be favoured, as communication by mobile phone alone will not be acceptable to all workers. For instance, delegates thought that some employees might not appreciate receiving text messages about their pension while on holiday.
But paper-based communications could only be used where appropriate as they were expensive, costly and time consuming to produce and deliver. Ann Flynn, head of corporate marketing at Standard Life, said: “You can’t send out joining packs to 25,000 members. It’s unaffordable.”
Delegates at the event expressed a general fear of the potential loss of control with social media if the pensions message got hi-jacked by influential commentators, such as key journalists. If employees posted links to media stories critical of pensions, the whole exercise could prove counterproductive. Ken Anderson, Xafinity head of DC solutions, said: “It’s quite dangerous, or at least it can be. There’s a loss of control.”
Ann Flynn said there were tracking devices which allowed providers to counteract such negative messaging: “The biggest risk with media in the workplace is you get negativity building.”
Participants concluded that online conversations could be moderated by the employer, that such conversations were part of the learning process and that it was better for providers, employers and intermediaries to be “inside, rather than outside, the tent.”
Workplace champions were seen as potentially a very positive way to raise employee awareness and engagement in relation to pensions and other benefits, if they could be made to work. McSweeney said he used workplace champions (an individual whom other employees in the workplace trust), for flex solutions and that these individuals play a similar role to the old shop floor trustees of pension funds.
But in an era dominated by DC, care had to be taken with adopting workplace champions as workers had more decisions to make. A workplace champion could potentially attack Nest, auto enrolment or make inappropriate comments on the value of different investment choices.
David Taylor, managing director at Towergate said his firm actively looked for pension advocates within client businesses. “We’re very clear that they’re there to promote the general approach to advice, rather than what we’re actually doing.”
Clearly with greater communication comes greater cost. If workers are given more information, this will generate more queries for call centres, intermediaries and HR departments.
In a straw poll held at the end of the round table discussion, nearly two-thirds of participants (63 per cent) expected providers to bear most of the burden of pension communication under auto-enrolment.
As a result, a large majority of participants – 87 per cent – expected providers to charge slightly higher AMCs for schemes with more extensive communication packages.
Only a quarter (24 per cent) expected the communication burden to fall mostly on employers and only one in eight (13 per cent) expected it to fall mostly on intermediaries. Nevertheless, nearly three-quarters of participants (74 per cent) expected their own per scheme charges for communication to increase as a result of auto-enrolment.
Consultancy charging remains one of the thorniest issues for intermediaries to deal with and how it is communicated will be crucial to its success or failure. And if consultancy charging fails, that could have significant ramifications for the firm offering the services through it. Delegates debated how much advisers could reasonably deduct from members’ contributions or funds, given that in a B2B relationship these costs would be taken without the member’s explicit agreement.
If employees discover that large chunks of money have been taken from their contributions or funds, intermediaries risk negative media coverage, the employer/employee relationship could be damaged and workers may even decide to opt out as a result.
McSweeney said that analysis of 10 existing GPPs and Nest, based on the average turnover of most of his clients, had shown that Nest looked reasonably expensive, on account of its 1.8 per cent upfront charge.
“I wouldn’t expect any of our fees to be expensive compared to the existing GPP market or for any of our fees to come out of members’ or the employer’s contributions. Fees would be paid directly from the company to myself,” he said.
But he admitted that this was only viable for larger companies. “In the SME market, clients tend not to have the time, experience or budget to do that, and they are facing an expensive cost in terms of auto enrolment and additional administration.”
Tim Gillingham, director Citrus4Benefits, said that for employers that currently offer no pension, intermediaries could offer flexibility in remuneration methods up to 2012, but establishing a scheme prior to October 2012 would preclude employers from offering Nest.
Where employers could not afford to pay an explicit fee, the cost would have to come out of higher AMCs, or an advice charge taken out of the employer’s contributions in the early years.
Delegates did not agree with Scottish Life chief executive John Deane’s view that taking 100 per cent of the employer’s contributions in the first year could be acceptable.
McSweeney said such a fee structure only worked well on a private client basis where the individual remained with the same provider for many years. He said that if HR told him that the average job tenure in a company was only three years, taking 100 per cent of the employer’s contribution for the first year would represent a ’horrendous cost,’ if the employee did leave after three years.
Communicating with workers about the default fund will require intermediaries to adopt a whole new pensions language. Several of the participants liked the DWP’s new pensions vocabulary, with Flynn saying that Standard Life had been using similar language for years.
Thurley-Ratcliff said the problem with auto enrolment was that employees might be lulled into thinking that because they had joined Nest or their company scheme, they had done the ’right thing’ and did not need to do anything else.
Thurley-Ratcliff said he knew of a company where the intermediary was encouraging the entire workforce into the default fund, on the grounds that the fund was well designed and it was their role to advise employees on what was best for them.
Jane Clarke, senior manager, communications at PWC said research showed that members were more concerned that their pension pots did not fall in value, rather than that they rose. “The idea of long term growth just didn’t test well with the population at all,” she said.
Beth Richardson, senior communications consultant at Hymans Robertson agreed, saying that workers were more concerned about the downside and risk, than reward. Other participants supported target dated funds as a way of encouraging member engagement, in that it gave something for the member to aim for and intermediaries to report on annually.
The good news for intermediaries is this huge communication challenge should mean their services are in demand. Voting at the end of the round table discussion, participants said they expected an increase for demand for communications in the run up to auto enrolment.
Auto-enrolment has been hailed as having the potential to introduce a step-change in the nation’s savings habit and to kick-start greater interest in financial services products across the board. Whether the policy will succeed or fail will depend to a large part on how it is communicated.