... and unwittingly highlight the challenge of the drive for more effective pensions communications and greater member engagement, writes Muse Advisory's Mark Hodgkinson.

At the end of a Friday I still try to turn left out of the office (turning right leads directly home). To the left is the pub where I can mark the end of the working week with a beer or two in an environment where no one knows, or is particularly interested in, what has been occupying my mind since the previous Friday. It is a pleasurable hour of 'clear water' between the working week and the relative leisure of the weekend. Last Friday was no exception, until a deeply absorbing pre-Ashes conversation about cricket was hijacked by one of the guys who wanted to talk about his pension. I stayed quiet and listened as the story unfolded something like this (names have been changed to protect the innocent!):

Geoff: Remember last year when I turned 65 and I was surprised by how big my pension was going to be? Well this week I had a letter from the old company saying they are going to increase my pension in a few weeks' time. It came as a complete surprise.

Paul: That can't be right. When I retired a couple of years back, my company told me how much was in my pension savings account, how much they would give me as a lump sum and how much pension the ABC Insurance Company was going to pay me each month. There's never been any mention of increases. But at least my State pension is higher than yours and that seems to go up each year.

Geoff: Well when I read the letter properly I realised that they increase the pension every year – it's just great. But I don't understand how you worked for much the same period and yet your State Pension is so much higher than mine. Perhaps you should ask if it's right or they might ask for some back one day.

Geoff and Paul are lifelong friends who worked in the different areas of the same industry all of their working lives. Each knew he had contributed to a pension that he expected to provide for his retirement; but seemingly that was all they knew. Just by listening it was apparent that none of the following terms registered any meaning with either Geoff or Paul: defined benefit; defined contribution; money purchase; annuity purchase; contracting out; SERPS; Second State Pension and so on.

Neither Geoff nor Paul is unintelligent – they each knew they had a pension coming and assumed (rightly in their cases) that someone somewhere was looking after it for them and that was all that mattered. But neither really had any idea about the basis on which their pension was to be delivered on indeed the quantum and whether it would be adequate for their needs. Can we really expect the current and future working populations to be so very different?

There will always be those, a relatively small minority I guess, who will be deeply interested in their pension from the day they start work. But 'engagement' is not for all and we cannot expect it to be. We need to organise matters to reflect this reality. For the majority it really should be enough to know that they are saving for retirement and that 'someone' is 'looking after it' for them.

Pensions governance = looking after other peoples' pensions.

Written by Mark Hodgkinson, director, Muse Advisory

mark@museadvisory.com