Even those inclined to save are easily discouraged. People worry about having saved only to have to fund long term care. Volatility scares people off all on its own. People simply cannot accept that the value of their savings could go down as well as up.
Too much focus has been placed on investing, given the level of understanding among the general population. For most, it is an abstract term, something that other – richer – people do and simply isn’t relevant to their lives.
It has been said before, but we must challenge and revise, the very terms pension and savings, particularly in the current environment.
Stories, not sales packs
Time and again, we worry whether it is sensible to inform people of how much they have in their pension. But, without context, it is meaningless and promotes the kind of knee jerk behaviour we – as professionals – don’t consider ‘sensible’ or ‘rational’. But people can seem ‘irrational’ because they don’t understand facts and figures. The adage that half the population doesn’t understand what 50% means is grounded in more than a grain of truth.
Great work has been done in the industry to improve our story telling, particularly recently with where money is invested and what good it does. This helps to make members feel more engaged, but it isn’t enough on its own. We don’t need a single narrative, but many different stories to engage with everyone who either doesn’t yet save, or doesn’t save enough.
Buying the future, not saving for it
Saving for the future is a commonly used phrase but is generally unappealing. It fails to engage because it sounds like we are doing it for someone else.
Everybody has a dream of having enough time and money to indulge their pastimes, be it something sporting, travel, or creative in nature. A pension secures not only an income, but buys time; time for you to do whatever you wish: ‘time banking’, if you like. That is a concept most people would endorse. We need people to see what we do is help them ‘buy’ their future.
People may not understand investments but everyone is a consumer and understands a purchase. These days people tend to do research online before buying an item, and will often listen to their peers and family members before making a choice. This network influences these decisions, so if all these groups get a strong narrative from the industry on how buying the future is worthwhile and rewards the customer with greater freedom over their time, it can only reinforce the saving habit.
This narrative still hinges on long term saving, but focuses on their story, not the spreadsheet or line graph that they cannot apply to their circumstances.
The journey they make in that story involves buying their future. Making use of this structure allows them to amplify their own cash, with free money from their employer and an additional top up from the government.
Consumers will still need to be warned that the value of their purchases could go up as well as down. But having bought a car, a house, or even just currency for a holiday, most people would understand this. And we must not only warn about volatility, but caution against snap decisions, too. The use of automatic triggers that only highlight when things are changing fast – and probably heading south – may tick regulatory boxes, but equally may encourage dangerous behaviour. Experience shows us that markets recover and we know that disinvesting will crystallise any losses and is a very expensive way of investing.
Finding the right message
It is not the only cost to watch out for. In the ‘lower for longer’ environment, costs being taken out have a proportionately bigger effect. At the moment, we can’t tell if that will get worse after the coronavirus pandemic. While 95% of people will never make an investment decision, most understand that if they buy something, it costs something to keep it maintained. So let us avoid the race to the bottom if we can show those maintenance costs are not only reasonable, but add value and buy them more time.
This industry has developed powerful segmentation for selling products to consumers that we should turn inwards to influence our communications. This will help us to understand which stories are working and with which groups of members.
Our industry’s communications must be meaningful and focus on security for the future, not products or investment.
Putting the punter first
As part of that we must also accept that it has to be acceptable for them to think that they can’t afford to buy more of the future now.
We face a difficult time in the coming years and while dashboards may improve engagement and reconnect members with long lost pots, in the short term, they may be focused on the basics.
We should encourage them to step back, not to lose sleep over not saving, but to check back regularly and prioritise it once the crisis is past. If we make people feel guilty for focusing on the here and now we are likely to lose them forever.
This article was featured in Pensions Aspects magazine September edition.
Last update: 19 January 2021