Promoting Pensions with Behavioral Science
The need for change
For too long almost everyone knows they need a pension, but apart from a few high net worth or enlightened individuals almost everyone accepts the status quo and ignores the issue leading many to start saving too little if at all in their middle to late thirties onward.
I'm Alan Hicks and this is exactly the sort of promotion and incentive that I used to put together at Motivforce. I see two core alignment issues that could be tweaked enabling workers engaging with their pension: relevance and timing.
Information about pensions has increased considerably and pension providers have made it easier to view a personal statement. Nevertheless there are two items — relevance and timing — that can be better aligned.
First relevance: Annual salary ≠ Monthly payment. A pension pot is listed as an annual amount from an annuity similar to a salary, but people think of how much they need to get by on per month. By aligning to a monthly amount it's easier for workers to understand how much they will receive to live on.
Second timing: By offering an annual statement at the end of March there is a specific point in time that everyone involved can work towards.
With those two key elements in place it's possible to resonate with workers at a much earlier stage than present.
Timing the various elements is essential. We live in an age of goldfish attention spans. To be effective, a carefully planned campaign needs to run for a few months, IMHO the end of December is normally a time for reflection and building up momentum to an end of March statement would offer a good opportunity to encourage take-up with an effective call to action following that build up.
What follows is an outline of how this might be implemented.
Creation of an annual statement
An annual statement at tax year end, similar to a P60, would offer something tangible for workers to assess their eventual pension entitlement. A statement that's clear and resonates with their life would better enable them to assess when they could retire and how much they would receive to live on.
There is a need for annotations/notes as everyone is different, need to pay tax above a threshold, probably multiple pensions from different providers and possibly other sources of income. For simplicity their monthly projected income should be shown gross. A sample pension statement:
| Description | Value | Note |
|---|---|---|
| Current age of retirement | 68 | 1 |
| Your current pension pot | £999 | 2 |
| Your monthly payments | £999 | 3 |
| Employer contributions | £999 | 4 |
| Government contributions | £999 | 5 |
| Your projected pension pot at age of retirement | £999 | 6 |
| Your projected monthly income before tax | £999 | 7 |
Notes: tba
Campaign planning
It's essential to:
- Plan and co-ordinate timed events;
- Create awareness;
- Build momentum;
- Call to action;
- Reinforce the benefits of additional voluntary contributions;
- Reassure the positive outcome;
- Create a pipeline of messages / conversations.
Responsibility
There are many actors involved in managing and promoting pensions, it's essential to understand who is involved, what aspect of pension products they cover (of which there are many) and why those boundaries exist.
Although there is a free market, in reality most workers will accept a company scheme. Recognizing this helps align what pension providers can and should achieve and what government should provide.
Government through the pensions regulator has overall responsibility for ensuring a level playing field, setting standards, coordinating efforts where necessary and providing funding for nationwide initiatives.
Understandably there has been little return up to now on any campaign generated by ordinary pension providers. Pension providers can give detailed information and a call to action, but it's government that can have a meaningful impact with an awareness campaign and follow up reassurance/reinforcement.
Pension providers have a detailed knowledge of their customers, how much they have invested, the current recurring income, the target retirement age and the current and projected future value of the investment. Their margins are thin in order to maximize eventual pension value. It's essential they communicate these specifics to keep their customers informed. It's from this information that customers can make an informed opinion about their future and respond to a providers call to action. Follow up reassurance is also essential to encourage continued investment.
There's almost no understanding that a pension is a specialized saving product or what they can expect to live on during their retirement. This is mostly due to combination of factors such as the concept of the historical nanny state, short term thinking, higher and more urgent priorities, and lack of understanding. Government can make a meaningful contribution by ensuring this information is both available and disseminated. The most impactful outcome would be a timely set of videos broadcast on one or more of the main channels from the end of December for awareness to the end of March for activation. There would be multiplier effects for leading conversations reinforcing those messages during the intervening months and reassurance following activation in April.
A varied campaign lasting three months is an ideal time to start a conversation and build momentum to a clear and relatable point in time for action.
Timing is essential. Although workers can assess their circumstances at any time of year, there is an opportune period between Christmas and New Year for reflection and contemplating the year ahead. This is an ideal time to initiate conversations about pensions, and to build momentum, continue educating and discussing aspects of retirement planning leading to end of year tax date similar to a P60 where an end of year statement can crystalize thoughts and initiate or increase investment.
Most workers accept their retirement age because they don't know or believe they can retire earlier.
Although the country is currently struggling, there are nevertheless many who could be prompted to increase their voluntary contributions. From years two and three, all the actors involved would better understand how they can work together to motivate individuals, plus the country should be in a better place enabling a significant increase in earlier contributions.
Instigating discussions starting late December continuing to the end of March would lead to increased inflows to providers.
There are too many involved in creating a promotions and incentives plan to mention them all, but a shout out to often unsung heroes are the copywriters and program makers who turn the need for retirement planning, a call to action, reinforcement and reassurance into something that can sensitively resonate with the target audience.
Messages by target group
Speaking to workers at the right time with the right message is key to resonating with them. Copywriters are best placed to craft appropriate messages and the following are offered as possible starting points.
Life stages determine the sort of message that might resonate the most.
Teenagers are invincible, that's their superpower and are rarely interested in pensions. Nevertheless for school leavers or university graduates alike, it's useful to sow the seeds of the need for a pension.
Love your job so much you'll be on holiday every day until you die? We wish you every success.
For everyone else are you content to retire at 68 and happy to live on your projected pension?Could you retire earlier or live more comfortably?
Those in their late 20s and early 30s would be a more receptive audience. Chances are they have started work, possibly a family and are establishing themselves:
Would you like to retire earlier or live more comfortably?
Could you contribute more to your pension and retire more comfortably at 68?
Those in their 30s onward might be more receptive to increase their contributions. Their life journey is likely to be more established and although they're under the magic 40, this is a time when they can make more of a difference.
Will your money bring joy for a weekend or work harder to keep you partying long into retirement?
Whether they're at their peak earning potential or not, for those in their 40s this is the last opportunity for them to make a material difference to their final pension.
If you think life is tough now, think how you'll live on your pension, for the rest of your retirement.
Are you living comfortably? Could you contribute a little more to enjoy it more when you retire...
It might be a a useful talking point for those in their 50s & 60s to discuss with their children/extended family.
Universal reinforcement
“By keeping up your additional contributions you will maintain a better standard of living in your retirement”
Universal reassurance
“Your additional contributions ensure you will have a higher standard of living in your golden years”
Continuing planning
For effective momentum building it's essential to have a set of messages / events to build and maintain interest. It's also helpful to maintain a pipeline of messages so that future years will accurately resonate with the next cohort, often this will be the same message, but not always, and there should be opportunity planning for news items such as WASPI women or pensioner poverty.
Summary
With a few minor changes to existing information, a specific timing event and targeted messages, pension planning can be better equipped to compete for scarce resources. With increased pension AUM, the country will be better able to resource its own growth.