This year’s Autumn statement delivered the well-trailed idea of a ‘pot-for-life’, and it wasn’t long before I was reading comments from all sides of the argument, many ending with ‘this brings increased need for good communication with savers’.
But let’s be clear – choosing where to put your new employer’s contribution is a spending decision. You will be buying investment services – and that’s not really communication, that’s sales. And while many in our industry think that the standard of member communication is in much need of improvement, the UK is very, very good at selling.
My concern, as a comms person, is how members will make the decision about where to “spend” their contributions. One thing that is certain is that it in most cases it won’t be based on a detailed and expert comparison of investment options, because almost no one has the skills and expertise to do this, nor the affordable access to someone who would advise them. Pensions are a complicated product. People like simple answers. That’s a bad combination.
I’m drawn to a comparison with wine-buying. There are a lot of ways to choose wine – colour, flavour, grape, vintage, grower, country, region, terroir, chateau and vintage. Wine is potentially one of the most complex retail products going. There are too many variables for the average person to consider, so the supermarkets have come up with a way of simplifying the process – they sell on price. Wine broadly sells in three categories – wine that you want to drink on a Friday night with a pizza in front of the TV; wine that you buy when you are with friends or having a nice meal in; and wine that is for a special occasion. That’s three price points. And the great trick the supermarkets pull is to discount part of the range each week so that a wine that looks like it could be in the category above actually falls into your budget for the category you’re buying for – so you feel you’re getting a bargain, even though you aren’t certain that the original sticker price was anything more than a method of allowing them to discount the price so you’d buy it. People have learned a short cut that works, and suppliers have learned how to develop that with clever price and positioning options.
Behavioural science tells us that people look for short cuts when making decisions. Given the choice for where to invest their employer contributions, the UK’s workforce will attempt to do the same. That means that fund charges, investment range, lifestyle construction, online tools, administration record, proposition investment, record of commitment to the market, Environmental Social and Governance options, the range of options at retirement and communication support – all currently considered by a company or trustee when considering a pension provider - all fall into the ‘too hard’ bracket at member level. In its place, my bet is that people will buy on bias - familiarity, brand, word of mouth, herd instinct, and (most worryingly) sales and marketing techniques. That is, if they buy at all. Most probably inertia moves everyone to a default except the most engaged. And that doesn’t seem a great outcome either.
Why does this matter?
Won’t the pension industry evolve to make this work, following the Australian model where the performance of ‘supers’ are the topic of pub discussion and the products aligned to the industry? Well, yes, probably. But my concern is that in the process we lose one valuable element – the last vestige of a world where an employer cares about helping their employees to look after themselves beyond today. Employers make a difference by being active participants in our market, and it’s one we shouldn’t take for granted.
The company pension market is driven to be competitive by the buying process – the providers know that TV advertising techniques won’t sell their pension products, and where UK pension providers do advertise, it is where they have retail arms. The corporate sell is still focused on good propositions being built to impress a highly competent advisory world, who invest in people to do the detailed comparison of products and services which drives much of the innovation, service level and low pricing. If the buying decision moves to the member, we risk losing that. If a snappy TV advert and inertia are the things that drive profitability, where is the business case to invest in anything else?
And worse, we undermine what could be the most effective channel of communication open to employees – their employer. At the moment an employer can let its employees know about things that are happening on a scheme – the launch of a provider’s app, access to a new guidance service, a free telephone helpline etc. If we reach a world where the employer has no idea what the pension proposition is for its workforce, that channel could break completely. The relationship between employer and employee – as far as pensions savings goes – could become entirely transactional. And I think the UK pensions industry will be the worse for it.
