Baroness Jeannie Drake, one of the Turner Commissioners considers the merits and challenges of engagement ahead of the TISA/Corporate Comms Shop seminar on Robo-Pensions on May 24th.
When the Turner Pension Commission was invited by the government to investigate how to help people save into pensions, it was faced with a private pensions system characterised by a dramatic underlying decline in both saving and employer engagement with work place pensions, which voluntary measures alone could not reverse.
The confusion and procrastination around pensions saving was such that even when offered an employer contribution to save into a pension many workers chose to do nothing. This was compounded by the decreasing belief among many employers that there were self-interested reasons to provide good pensions.
Inertia was a significant constraint on private pensions saving in the UK. Part of the remit of the Pension Commission was to consider how the barriers of inertia and high cost which deterred voluntary private pension provision could be overcome. The Commission recognised that workers save for retirement when the employer gets involved and makes it happen and without employer involvement workers will save less.
The findings of behavioural economics challenged the assumptions that individual decision-making is rational in the classical economic sense. It provided explanations for real world phenomena such as procrastination and inertia.
The Commission’s recommendation on automatic enrolment was a policy intended to support a pensions system centred around the rebuilding of the second – occupational – pillar as a mass savings vehicle. The recommendations put the workplace at its heart, accepting the reality of individual inertia, harnessing this inertia for the public good and compelling employers to engage. To be enrolled into a pension scheme the eligible workers have to do nothing, leaving them free to opt out if they so choose. The subsequent low opt out rate from auto-enrolment following its introduction (under 10%) supports the assumptions underlying that recommendation.
The Pension Commission examined a number of projects on engagement and information and their impact upon saving. These indicated that tailored information does appear to increase savings, but only in a limited number of cases and significantly less than the impact typically produced by inertia mechanisms.
The Government terms of reference for the review of Automatic Enrolment include improving individual engagement with pension savings with the implied presumption that improved engagement will maximise savings. The important question underpinning that review however, should be ‘what level of engagement is most appropriate for different individuals in order to produce the best outcomes?’.
Automatic enrolment has been a compelling lever of change, the behavioural intervention that has harnessed inertia for the public good and got millions to start saving or saving more. It is unlikely that any Government would reverse the policy. They could however, weaken its effectiveness by policies which introduce friction into the process or weaken the employer engagement.
The government announced its ‘Freedom and Choice’ policy during the Budget of 2014 giving individuals much greater ownership of how they decide to use their retirement savings.
Individuals reliant on funds accumulated in DC pots who exercise their ‘freedom and choice’, will be vulnerable to behavioural biases but public policy has not yet reacted sufficiently to assist people to make better decisions. It is largely limited to making information available which is unlikely to ameliorate problems significantly. Behavioural economics highlight how information remedies may be ineffective where behavioural biases influence how the information is assimilated and that defaults may be a better remedy.
Public policy decision making is now predicated on splitting pensions into two elements, a saving phase and a drawing down phase. At the saving phase policy recognises the inability of individuals to act in the face of complexity and that behavioural biases inhibit optimal decision-making. Regulated defaults have been introduced at the savings phase to assist in addressing those problems (e.g. auto enrolment and default investment funds). At the drawdown phase public policy expects behaviours to be dramatically different with individuals bearing the responsibility for making optimal choices.
The ‘Freedom and Choice’ agenda is now firmly in place, so it will be important to be careful about how and when public policy encourages engagement and to understand when there is a role for inertia in the new decumulation landscape through default decumulation glide paths, which guide savers into solutions for their retirement needs.
Complexity and behavioural barriers will mean many people are not well equipped to make informed decisions. Guidance and advice are important but may not be sufficient for all individuals managing the responsibilities and risks that have been transferred to them.
Come and hear more of Baroness Jeannie Drake in the session ‘To Engage or Not to Engage, That Is the Question’. A debate about whether it is better to pursue the goal of getting all pension savers to engage with their accounts from an early age, or whether it is better to let inertia take its course, running schemes with strong independent governance, and then to gently wake members up as they approach retirement age.
- Debate Chair : Dirk Paterson, Corporate Comms Shop
- Pro Inertia : Baroness Drake, former Pensions Commissioner
- Pro Inertia : Andy Tarrant, head of policy and government relations, The People’s Pension
- Pro Engagement : Paul Sturgess, Director Private Sector, Equiniti
- Pro Engagement: Phillip Walter, Group Chief Executive, Aquila Heywood
Wednesday May 24th , afternoon seminar and early evening networking reception
Hogan Lovells, Atlantic House, 50 Holborn Viaduct, London EC1A 2FG
Ben Goss – Dynamic Planner, Distribution Technology
Baroness Jeannie Drake – former Pensions Commissioner
Phillip Walter – Group Chief Executive, Aquila Heywood
Jon Greer – Old Mutual.
We will be examining: innovative digital and technology solutions; new consumer research into attitudes to utilising housing equity to make up pension shortfalls; the benefits of engaging and not engaging; how behavioural science can help get the best results for saving.
As a recipient of this email I’m able to offer you a cut price ticket.
Standard ticket price – £300
Friends of Corporate Comms Shop reduced price : £200
To book for £200 please call TISA by phone on 01642 666999 quoting the discount code for the Corporate Comms Shop: CCSmr283
The Seminar will appeal to :
– Proposition Owners
– Operational Managers
– Analysts and Consultants working on improving member communications
At the end of the seminar you will have an understanding of:
– The latest cutting edge communication techniques
– How and when to be proactive with pension communications
– What customers want from communications