Engagement with retirement saving is a perennial focus for policy makers and for the industry in the UK and beyond. In the UK, the success of auto enrolment means that millions more individuals are now saving into a private pension. The use of an automatic enrolment default combined with payroll-based deductions has helped individuals overcome behavioural barriers and get started with saving, rather than putting it off to another day. Inertia has clearly been harnessed for good, but the flipside of its power is that many savers who have been automatically enrolled have lower levels of engagement with their pension than if they had made a more active and voluntary choice to start saving. And for many, auto enrolment’s default settings will not lead to the sorts of outcomes they want or expect in retirement.
At Nest Insight, engagement in pensions has been a recurring theme of our work since we launched in 2016. We’ve looked at engagement through a variety of lenses, working with Maastricht University to examine the role of life events and beliefs, and more recently, working with the Department for Work and Pensions (DWP) to trial messages and interventions exploring how to best support the self-employed into saving for retirement.
We know that increasing engagement is not, by itself, a silver bullet for improving the long-term financial security of savers. Not all messages gain attention, and not all engagement is positive or better than inaction. There are moments when individuals may not need to engage too much with their retirement saving, and indeed where the wrong kind of engagement could be detrimental. There are also times, however, when people should be making a more proactive choice during their working life. The COVID-19 crisis acutely demonstrates these challenges and risks: it may create touchpoints and ‘moments that matter’ for some savers, who might then engage with retirement saving in a positive way. But people are also likely to have a more short-term focus right now, so ill-considered communications could have adverse effects, such as prompting the cessation of pension contributions.
Of course, even if complete inertia were to serve savers well as they build up their pensions pots, the Freedom and Choice reforms of 2014 mean that when they reach retirement, every one of them will need to decide in what form to take their accrued assets as an income and/or cash.
So, there is an important role for relevant and motivating communications to play at a number of points in our financial lives.
We want to build a better understanding of the existing behaviours of people who have been automatically enrolled, and to explore how those behaviours might be influenced to help them achieve better outcomes. Working with our strategic partner Invesco, we aim to identify language and message framing that better engages, informs and motivates individuals to save for their retirement to drive a defined positive outcome. Invesco has a strong track record in language research, and together we are conducting in-depth qualitative and quantitative research to this end.
The first phase of this research is underway, looking at the language and messaging around pension contributions, and we look forward to sharing our findings with you over the coming months.
Michelle Cremin, Head of Development at Nest Insight