A well-respected (and very good) pension lawyer recently posted this question on a pensions website
The news from the NAPF that one in three workers may opt out of pension saving despite being automatically enrolled is depressing reading for anyone. This will leave many in poverty in retirement and taxpayers having to continue to fund pension benefits for those without their own provision.
Pension provision is an issue with which the country is already grappling. It has already led to disputes with unions relating to plans to revise public sector provision as part of a wider austerity programme. To think that circumstances will be no better – perhaps worse – for our children makes for uncomfortable reading.
The ‘why’ is important. If it boils down to affordability that is one thing – who can afford to make pension contributions when they can’t heat their house? But if fundamental lack of trust is to blame, the pensions industry must make strides to better understand and to engage with the public.
We’ve had this debate a few times and I’m on the side of whatever gets people saving
The post has solicited two types of response; some have argued that it’s down to the economy and people can’t afford to save, others have suggested its down to Public Relations. One respondent suggested that we might be able to improve public perception of “pensions” by renaming them “retirement savings”. I know the person in question who is a diamond but on this occasion I think he is wrong.
The reason people aren’t saving as they should do is less to do with the economic climate and poor PR as it is to do with a fundamental distrust of pensions and this is not down to PR but because people are fed up with being bullsh*tted.
If people think they are being told half the story, they stop listening.
Examples of the kind of thing people hate are
“the company is not doing this to save it money”
“the company can’t afford the current pension scheme”
“the new arrangement could actually benefit you more “
The things people like are…
“these benefit changes are not good news but we have to make them and here’s why..
“you are likely to get less under the new arrangements unless you save more…
“you are unlikely to have anything like the income in retirement you have now…
“but, if you listen to me – I can show you how to do the best for yourselves….
In our experience , unless companies and advisers tell members and non-members how it is, they don’t have any platform of trust on which to build a relationship.
Telling someone they should put away today’s money with no certainty of their ever seeing it again is a tough ask but people would rather be told the tough facts than be soft-soaped. If you listen to the way people talk about pensions among themselves – they do so through gritted teeth.
That said, people know they can’t ignore pensions and for all the gallows humour about not making it to 50, most people are waking up to the likelihood they’ll have to work longer and will live longer.
So long as you can make a coherent argument for putting away some of today’s money for the future and convince people that it’s better to do this through the works scheme than by putting the money in the bank, people will use workplace savings.
People also buy the “replacement income” story. Not the “give me a pile of cash at 65” but give me an old age pension. They know deep down that they are not going to turn their house into a pension (even if they could).
But they are only ready to sit down and think about this with someone they trust and it’s critical that the trust is generated by plain speaking and an honest approach. The very best pension managers I’ve seen at work, have this trust from their members but in many small firms that don’t have a pension manager it can be a trustee, a trusted manager or just the one person at work who people know, knows what they’re talking about.
For many companies, the best communication strategy will revolve around finding that person and making sure they are available to other staff. Training these people can be more effective than hiring external consultants (Pete’s point is right – they have to know what they can’t say, but there’s plenty they can.
We should also accept that the most trusted source for financial advice is on-line. www.moneysavingexpert.com has overtaken all other consumer websites because it delivers no nonsense information and clear generic advice about what to do and what not to do.
The only time that the retirement savings thing gets tricky is when people come to buy their pension, till then people can rely on default options , pension calculators and finger in the air projections.
Where there is a massive shortfall in consumer confidence is at the point when they come to “cash in their chips”. Ironically, having been badgered to save all their working lives, many working people report feeling totally on their own at retirement. The results are clear – only one in four people purchasing annuities from an occupational scheme even bother to shop around – let alone go for medically enhanced annuities or explore alternative annuities.
When ordinary people hear the horror stories from people they know (usually family or close friends) who get pensions of a few quid a week from their “retirement savings”, they say “why bother”.
Companies who have bothered to contribute to their staff’s “retirement savings” for years- often decades, can’t seem to be bothered to help them with their “pension”.
So perhaps we should be talking about “pensions” first and “retirement savings ” second. You need £100,000 of retirement savings to buy £5000 of pension but it’s the £5000 of pension that matters!
Put another way, if I went to an interview and my future boss told me I was going to get £500,000 from him, I wouldn’t believe him. If he told me he was going to pay me £25,000 for the next 20 years – I would!
Good article, Henry. I would add one observation. I agree that the most trusted place for advice is online, but not necessarily from financial websites. When it comes to money, family and friends are still the most trusted providers of advice and the trust that people have in the information they glean from social networks is staggering. I think it could be down to the fact that advice from one’s ‘virtual’ circle of friends will always appear to be unbiased, although it’s not as individuals always try to justify their own actions by putting a positive slant on them. Nevertheless it is an advice source we cannot ignore if we wish to calm people’s fear of the financial services sector and nudge them towards a better level of financial planning.
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