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Getting your communications fit for the new pensions landscape

Getting your communications fit for the new pensions landscape

This is the first of a four-part series of articles, considering what can and should be done now to get your communications into shape, ahead of the Pensions Reforms.

Setting the scene

The regulations surrounding the 2012 pension reform were laid before Parliament at the end of January, and are due to come into effect on 1 October 2010.  It is clear that there is a gap in the level of retirement savings (indeed the level of savings generally) that, if left unfilled, will cause a problem for future governments of whatever complexion. Although a change of government may lead to some tinkering around the edges, it is unlikely at this stage that the major principles of the reform will alter. There is no denying, therefore, the fact that the pension landscape is changing and will continue to change as a result of the 2012 pension reform.

The greatest change for employers who already offer workplace pension schemes, whether those schemes are trust-based or contract-based, will be the introduction of auto-enrolment and the accompanying requirement to provide a qualifying scheme – either by offering a completely new scheme or by changing an existing scheme so that it complies. Whatever approach is taken, there will be a need to overhaul your existing communications to prepare your employees for the new environment.  Where the scheme is trust-based, employer and trustee board will need to work together for the benefit of the employees.

Another knock-on effect of the reform is the determination being shown by the Department for Work and Pensions to make pensions a subject likely to be discussed among people in the same way they might chat about their mortgage.  They have already started this process with the launch of posters, radio ads and banner ads on websites featuring workers (in the form of plastic toy people) of various ages under the strapline ‘Build a better future’.  These ads direct individuals to the retirement planning section of the newly reworked Directgov site where visitors can find out information relevant to them by selecting the statement that most matches their situation. If the DWP’s initiative works – and it is arguably vital for the potential success of the 2012 reform that it does – employees will begin to engage with pensions and saving for retirement, and begin to ask questions of their employer or trustees.

Regardless of the reform, however, it is a matter of good practice to review your communications strategy and actual materials from time to time. Having a well thought out strategy and producing clear, engaging communication materials helps to ensure not only the understanding of the members, but their appreciation of the benefits offered. The latest NAPF Workplace Pension Survey (published March 2010) found that ‘over three quarters of people would view their employer more positively if they provide a workplace pension’ and that a workplace pension was the most important workplace benefit, above bonuses and the right to flexible working. Although member appreciation of benefits may not be that important in terms of recruitment and retention during periods of recession, it can be key when the labour market becomes more fluid as the economy recovers, and a well thought out communications strategy can help ensure your employees appreciate what they have.

Still not convinced? Increasingly the Pensions Regulator is focusing on member communications, particularly in the DC space, perceiving lack of member understanding to be a key risk to the security of members’ benefits.  In the last year, the regulator even went so far as to offer two leaflets for schemes to pass to members to help them make informed choices – one focussing on investment options and one on retirement options. There is the potential for the regulator to begin to take action over what it regards to be a failure of communication. 

Finally, the disclosure regulations – what you must communicate to members of occupational pension schemes and how you must communicate with them – look like they are finally being brought in to the 21^st Century, again largely driven, I suspect, by the practicalities of administering NEST.  The greatest change in terms of content proposed is in the ability of DC schemes to send out shorter, clearer SMPI statements.  But where the proposed regulations may really make a difference is in the proposal to allow the provision of information electronically.  So again it is worth reviewing what you do now, to determine whether and how you can take advantage of the opportunities offered. 

What do you want to communicate?

Assuming that the need to communicate and the advantages of delivering clear, meaningful and engaging communications are accepted, it is time to think about the initial steps to setting and implementing a successful communications strategy.  For this, it is necessary to go back to first principles and examine what it is you are trying to achieve.  You wouldn’t implement a change to the scheme itself, for example a change of member investment options, without considering thoroughly the needs of the members, the rationale for the original choices and what it is you are trying to achieve, so that the new options you offer do fulfil their purpose.  It is time to think about communication in the same way.

Generally I find that there are four main objectives behind the desire to communicate with members:

1)       Informing members of a major change to the benefits

This is a legal requirement, of course, but offers the opportunity to address other potential issues, such as lack of member understanding, as usually all the communication materials will need to be reviewed.

2)       Increasing member understanding

Generally desired by the sponsoring employer - who would like to feel that the time and money they spend on providing a pension scheme is appreciated, especially if they provide or will provide, come 2012, above the legal minimum required – but always supported by the trustees (if a trust-based scheme).  In fact lack of member understanding has been identified by the Pensions Regulator as one of the key risks to the security of members’ benefits in the DC environment.  Trustees have a duty to protect members’ benefits and so to improve their understanding.  Also, appreciation of the current provisions and the level of take up prior to the introduction of auto-enrolment is seen by schemes as a positive move, and is welcomed by sponsoring employers as a way to lessen the impact of auto-enrolment (especially on the balance sheet), if the take up (and therefore the contribution level) is increased gradually over the next few years.

3)       Increasing the levels of member engagement

Trustees and the employer have an interest in helping members not only understand their benefits but engage with them – take positive action themselves to help secure their income in retirement.  Evidence of high levels of member engagement among members of a DC scheme include the pattern of investment choices – are members all in the default fund or are they making active investment choices?  Do they review their contribution levels every year?

4)       Helping employees adjust to the new pensions landscape

Trustees, employers, advisers are all being asked to play a part in helping pension reform work, not just by fulfilling the requirements of the new regime, but also by helping the workforce to understand about why they need to save for retirement.  Effective communication of your existing arrangements can help, and help you by ensuring your employees understand whichever route you take to compliance.

You need to be clear what the objectives are – which has priority, for example – and be aware of the different views of the various stakeholders.  Remember that, for a trust-based scheme, it is the trustees who are legally responsible for the scheme communications.

The objectives must also be measurable, so that you can tell if the strategy has been effective. For example, in the case of increasing member engagement, you may think to measure success by the number of members actively moving their money from the default fund, but arguably, this may be a false measure.  Engagement is all about members being able to make informed choices.  Following a campaign of engagement, members may well still continue to invest in the default fund, the difference being that they have thought about what they are doing and made a conscious choice to stay where they are.  A more useful measure, therefore, could be to set a target for the number of requests received for further fund information.  

The setting of measurable objectives - and the following articles in this four-part series will investigate different measures – is key to demonstrating the worth of properly thought out communications and ensuring that communications takes its rightful place alongside the other areas of pensions, rather than simply being an afterthought.

The next article will look at developing the strategy itself, including how to reach out to your audience to be sure you connect with them.

Company Profile

Ferrier Pearce, one of the UK's leading providers of employee communications, has over twenty years experience of working with pension schemes, blue-chip employers, investment providers and consultancies