Let’s talk about the “R” word: ways to help employees plan their financial future from age 55

Getting individuals to engage with retirement has a variety of different challenges to overcome. “retirement”, “pension”, “investment” are all financial concepts that are associated with complexity or negativity – not a good start. Most savers in the UK have low financial confidence, finding it stressful to navigate mortgages and debt, let alone saving for retirement. And often retirement, emotionally, is too far away to be important.

To add to all of this, retirement decisions are complicated! There are pension freedoms to navigate where an individual’s health, wealth or family circumstances all need to feature in decision making. With the average person having 11 different jobs and therefore potentially 11 different pension pots, building a factual financial picture is not easy. Even before an individual gets to retirement, they should also be thinking about how much they are saving and often this is not the case.

The need for a nudge in the right direction

The Financial Conduct Authority’s Rules of Thumb and Nudges: Improving the financial wellbeing of UK consumers (2017) research shows that “many people do not typically plan for their future or engage with financial decisions in a strategic manner. Moreover, they have little awareness of the advice and guidance that is available to help them meet their financial needs”.

To turn this around as an industry, we need to recognise that people are not always rational and are often guided by emotions, and so we should be looking more to behavioural science to help individuals plan for their future.

I recently attended a training session on “nudge strategies” and how using positive reinforcement and indirect suggestions can influence member behaviours. Some simple concepts can have a huge impact, such as the Bandwagon Effect. For example, how much more likely are you to take an action if I said, “nine out of 10 people in your team have checked their pension pot this month” compared with, “you should check your pension pot this month”.

Behavioural science was also behind the recent trial where individuals were being nudged to take up the free Pension Wise guidance service. Given the complexities mentioned above, guidance will have a key role in providing reassurance to individuals that are exploring their retirement options. The Pension Wise Service Evaluation 2019/20 report also evidenced the positive impact of guidance with 61% of individuals that attended a face-to-face appointment taking an action to calculate the income they will need in retirement, compared with 37% of non-users.

Some individuals will not be satisfied with guidance so there may also be a need for individuals to take independent financial advice (IFA). Traditionally IFA advice is seen as being expensive and the IFA market very busy. However, we are increasingly seeing the development of online guidance services with cost effective advice solutions available at the end.

Moving towards better retirement planning

The pensions industry is doing a lot more to talk about and help individuals prepare for retirement, but there is still a need to improve education and support to enable individuals to emotionally buy-in to retirement planning. Guidance, advice and nudges are all tools that will have a role.

As an aside, I read an interesting blog on advertising by Mission Minded, where they were essentially suggesting that someone might need to hear a message 14 times before they will take any action. That might be a challenge for you all, how can you raise “planning for retirement” 14 times in your communications journey to ensure your messages are getting heard!

If you would like to discuss any of the above further, please do get in touch.

The author is Kathryn Fleming, pensions consultant, partner and actuary at Hymans Robertson.

This article is provided by Hymans Robertson.