Encouraging savers to maximise the benefits of auto-enrolment is easier said than done. Charlotte Moore looks at how to build a solid communications strategy.
“Usually people who understand pensions write letters to people who don’t in pensions language and then wonder why no-one reacts.”
Steve Webb, Royal London Asset Management
The introduction of auto-enrolment is only the first step in ensuring future generations will have adequate retirement incomes.
For this policy to fulfil its objectives, contribution levels need to rise and scheme members need the right tools in order to make the most of their pension pots.
But a weak and chaotic government makes it unlikely that any helpful policy changes will be forthcoming from politicians: it will be up to the industry to take the necessary steps to maximise the benefits of auto-enrolment.
Companies, schemes and master trusts can make the most of the lessons they have learnt from behavioural economics and auto-enrolment to bring about real change.
Steve Webb, head of DC policy at Royal London Asset Management, says: “We should harness behavioural economics as much as we can.”
For example, rather than just trying to encourage their members to save more they should instead switch members to higher contribution levels while allowing them to opt out. “Companies which put these policies in place have very high levels of take up,” Webb says.
Nationwide recently used this technique to great effect, harnessing the inertia of auto-enrolment to enable them to switch people to higher contribution levels by allowing them to then decide to opt out.
But for these policies to be effective, they need to be supported by a good communications strategy. Webb says: “Richard Thaler, who won the Nobel Prize for his work on nudge economics, said: ‘It’s not just about good default funds.’”
Ranila Ravi-Burslem, director of marketing at Nest Corporation, says: “There is no silver bullet. Encouraging people to save more requires policy, product and communications to work in harmony to drive the right outcomes.”
In the case of Nationwide, it did exactly this. Its policy was backed up by a strong communications strategy. PLSA head of DC policy Tim Gosling says: “Nationwide used Hymans Robertson’s guided outcomes tool, which allows employees to calculate the probability of hitting their target retirement income.”
In other words, good communications is about a greater appreciation of how to encourage people to make good decisions. Webb says: “We need to understand the way we make our choices and how we frame those choices.”
To use communications effectively requires an understanding of how words and their context shape human behaviour. The first step is to use language the member will understand.
This is not the traditional way of doing things. Webb says: “Usually people who understand pensions write letters to people who don’t in pensions language and then wonder why no-one reacts.”
Communications should no longer be written by the pensions department. Webb says: “At the very least, ‘real’ people should be writing them.”
