Pensions Aspects July/August 2018

Acceptable in the 80s

Thirty years ago, providing information to members about their accrued rights was a simple matter. In an era where Defined Benefit (DB) coverage was the norm, schemes were required to provide details only under specific circumstances, such as leaving service, the submission of a transfer request or imminent retirement. Then – as now – there was no statutory requirement for DB members to be provided with an annual benefit statement.

This was not perceived as a problem, as there was no incentive for schemes to try and improve levels of member engagement. Providing the benefit promise was the responsibility of the trustees alone and required no active role on the part of the member. Apart from anything else, until 1988, employers could make membership of the occupational scheme a condition of employment, and so members were required to accrue a benefit even (for whatever reason) they might not have wished to do so.

Another constraint on promoting member engagement was technological. In an era before the internet, providing information for members inevitably meant sending out paper documents. The costs arising from drafting, printing and posting documents made this process laborious and expensive. With little obvious benefit to the scheme in conducting such an exercise, it was obvious that many did not bother.

Today’s environment could not be more difficult. Today’s member is likely to belong to a Defined Contribution (DC) arrangement. He or she may have joined as a consequence of auto enrolment; active consent to join may not have been given, but the right to withdraw applies at any time. Crucially with a DC scheme, effective member engagement is absolutely necessary if members are to appreciate the true value of their benefit and ultimately achieve the goal of a satisfactory retirement outcome.

The onus lies with trustees and manager to ensure that members properly appreciate the value of scheme membership. Whilst the statutory requirements to provide an annual Benefit Statement and Statutory Money Purchase Illustration have been in place for many years, a communications revolution has arisen via the internet.

Online access to pension scheme information allows members to check – in real time current fund values. They can make fund switches, review scheme rules and consider transfer and decumulation options. It may be possible to model the impact of changes to contribution rates or of bringing forward or deferring decumulation. Online information is extremely empowering for members and plays a vital role in promoting member satisfaction. For DC schemes, this is a crucially important consideration.

It is therefore surprising to learn that according to recent research as many as a third of employers sponsoring DC schemes have not provided online access to members. PwC established that younger members in particular consider the option to manage pension savings online is particularly important. Failing to provide access to a form of communication which younger people consider the norm is a serious obstacle to effective member engagement.

Whilst PwC’s research suggests that employers are prepared to make the necessary financial commitment required to improve employee engagement with pension saving, there is for many a lack of clarity as to how this might best be achieved. Many lack an understanding of the associated technology and the benefits it can bring.

Auto enrolment has been one of the great success stories in the pensions industry in recent years. Bringing so many new employees into pension saving, when competition for scant employee financial resources has been so intense, has been a significant success. It would be a terrible failure if this success were to be compromised by a myopic approach to the importance of successful member engagement.

As is always the case with pensions, a vision for the longer term rather than a short-term fix is absolutely necessary.