For many employers, defined contribution (DC) pension plans have become the primary source for retirement savings for employees. But many employees are uneasy about making the ongoing and complicated investment decisions necessary to build adequate retirement savings. As a result, they are under-planning, under-saving and under-prepared for retirement.
This often comes across as indifference or apathy. And it’s a problem facing employees around the world as employers shy away from defined benefit (DB) plans and place more responsibility on employees through DC plans.
But what looks like apathy is really a lack of personal confidence in the face of too many investment choices, according to focus groups conducted by Buck Consultants in the United Kingdom in 2009 with about 50 HR and pension professionals, consultants and academics.
The complexity of investment products seems to be a major issue in preventing people from managing their retirement assets well — a smoke–and-mirrors perception spread by the confusing literature and jargon flooding the market.
One-half of the sponsors of DC plans said their biggest concern is employees lack the financial literacy to make wise investment choices, according to another survey done in 2011 by Buck Consultants. Almost three-quarters of the 60 respondents said confusion over investment options was the main concern of plan members, which is not surprising since about 60 per cent of sponsors offered more than 10 investment choices in their plan.
DC plan sponsors should look at introducing fresh approaches that alter perceptions and remove the barriers to long-term retirement saving.
While plan sponsors are attempting to convey their messages using a wide range of media, the communications are failing to meet the needs of their membership year after year. The best strategy, then, is to provide the best quality information, offer appropriate investment choices and connect employees with great resources.
Get to know your employees: Employees have a healthy distrust of employers, financial advisors and pension trustees, according to the Buck study. They believe employers and financial advisors have vested interests that are not aligned with their own. They question the ability of pension trustees and distrust the advice given to them by pension consultants with their own targets and drivers.
Employees no longer tolerate boring literature sent to them in jargon-filled language. They want to explore options and arrangements themselves. They expect their employers to enable this journey in an intuitive manner.
The answer isn’t necessarily about employing different media — such as the web, social media or apps — or increasing the volume of communication. Plan sponsors must seek to clearly understand the needs, financial literacy levels and engagement drivers of employees, and then build a communication strategy and tactics based on the findings.
Think like a journalist, not an administrator: None of the research participants rated their current pension literature as shining models of financial education. And pension professionals agreed most pension literature goes straight into the trash bin. They did, however, highlight newspapers and magazines as key sources that help people make better financial decisions related to savings accounts, buying shares, credit card deals or mortgages.
There’s nothing to stop pension and investment communications from adopting the best traits of print media. These are written in a language that people easily understand — each article is concise, has a catchy headline and is often supported by interesting visuals. Call-outs highlight key points to take away and the articles carry a human interest story. Further, they are read on a regular basis — daily, weekly or monthly. Finally, good newspapers and magazines are valued for their credible and factual reporting.
Employers can adopt these traits when communicating with employees — using eye-catching headlines, infographics and human interest stories.
Think like a designer: Communication design seeks to attract, inspire, create desires and motivate people to respond to messages. From a plan sponsor’s perspective, design can be used not only to help employees understand new information but to engage and connect with them.
Good communication design helps people notice your message by appealing to their senses, especially vision, in ways that can cut through everyday noise and distraction. It helps employees see what you’re actually saying by bringing the message to life (for instance, through calculators and modellers). Finally, design helps employees respond to your message by connecting it with their personal lives, stimulating them to want to take action.
Take advantage of existing connections: The most common financial education channel is learning from family and friends. These networks provide people with advice on mortgage rates, financial recommendations and even share purchases. This has led many pension professionals to tout the importance of building engagement with pension and benefit arrangements.
None of the social media communication tools — such as Facebook, Twitter and text messaging — are used to make financial decisions, according to Buck research. Instead, financial information websites are some of the most used. These allow people to access anonymous comparison statistics, share personal information under pseudonyms and read independent opinions.
Sponsors don’t need to adopt new technologies to reach plan members, they just need to make good use of existing corporate intranets, pension websites and reward portals to create consolidated platforms that deliver financial information the way employees prefer it. Existing web technology can integrate messaging with education, peer ratings, activity levels and recommendations.
By providing links to the tools on financial information sites, you’re finally giving employees what they need to significantly boost their ability to manage their savings.
Girish Menezes is a London, U.K.-based principal and Shane Morgenstern is a Toronto-based national communications leader and creative director at Buck Consultants. For more information, email email@example.com or visit www.buckconsultants.ca.