Rules of engagement

There are three key players involved in the world of occupational pensions – the employer, the trustee, and the member.

They operate in a landscape dominated by two significant shifts: the move from defined benefit provision to defined contribution and the move from trust to contract-based schemes, which create different pressures on each player.

Employers are above all concerned with the overall cost of provision and how employees value the benefit. Trustees have to contend with the complexities of simplification, increased governance and a post A-Day world. For the member, changes which have removed the “job for life” culture and placed greater emphasis on personal mobility have made self reliance key for future security.

There is extensive shared ground between the players which forms the starting point in any form of communication with the members.

What is the shared ground? Fundamentally, both trustees and employer wish to help the members understand their role in planning for retirement. This objective is clearly in the best interests of the member. That the trustee and the employer approach this with different agendas makes it all the more relevant.

A trustee is required to operate the plan in the best interests of the membership. They must ensure members understand the benefits on offer. For employers, the expense of running a pension plan requires a return on investment, which is best achieved by ensuring the employees understand and value the benefits offered.

So, it is in the best interest of the employer that members understand their benefit structure. It is a fundamental principal of the trustees to educate the members. Given all this, the assumption is that members have all the information and confidence they need to make rational decisions about their future.

Unfortunately, experience tells us this is not the case. Most trustees will acknowledge when it comes to retirement savings, most members are not as sophisticated as they would like them to be.

Many do not join when they are eligible. Many do not save enough. Many do not save early enough. Some rely on rule of thumb investment choices; if they choose at all. They can be over-reliant on recent experience. They rarely make decisions and rarely revisit the ones they have made. Of course, there are exceptions but in our experience, they are in the minority.

The solution is not as simple as the diagnosis. A start should be to ensure the goals of the scheme are aligned with the role the company wishes it to play. A pension scheme can be a very effective part of the business’s HR strategy and but it is too often left in isolation.

Is it to be an outsourced benefit? Is it part of a financial education programme? Is it used as a recruitment and retention tool? Once this is determined, the most appropriate choices for benefit design become apparent – for example, auto-enrolment, employer contribution match, automatic annual increases. However, this must be under-pinned by communication and education, which engages and empowers members.

There are some golden rules:
• Key retirement planning messages should be delivered in bite-sized chunks via different but integrated media to engage the members;
• A basis in the theory of adult learning will help with the education process. It is less about telling members what to do and more about helping them to help themselves;
• Once engaged and educated, members should be empowered via a range of pension-management tools, from the simple helpline to sophisticated web technology;
• Measurement of the impact of the programme is as important as setting it up in the first place. This includes measuring attendance at seminars, online usage, and volume of calls to helpline and member attitudes. Remember to apply the learning gained from this feedback with planning the next stage.

In this way, organisations can position a pension scheme as part of a comprehensive reward and employment strategy, supporting the achievement of organisational goals by meeting the needs of the current and future workforce.

Tara Flynn is a principal at Mercer