Uncertain times mean greater need for transparency on pensions

Events like the war in Ukraine and its impact on the markets risk pension members panicking and making poor investment decisions

The last three years have been some of the most turbulent of recent times. With a global pandemic resulting in tumultuous market conditions – not to mention the obvious health risk – a change in the way we work and live, a war in Europe and a cost-of-living crisis with inflation rates close to those not seen for 40 years, it’s safe to say that uncertainty has become the new normal.

But that doesn’t mean it’s become easier for people to deal with. We all have an innate need to feel in control and when things are uncertain, panic is a natural reaction. During an organisational restructure, we worry about our job security. When the investment markets are volatile, we worry out our savings and pensions.

The antidote to panic is clear communication

Situations like the war in Ukraine and its impact on the markets risk pension members panicking and making the wrong investment decisions – a knee-jerk reaction which is always dangerous. But this can be avoided with pre-emptive communications that explain the long-term nature of pension investments and similar messaging at the point that members can actually change their investments, so at least they have the opportunity to consider the situation before taking action.

But, to be of value, this information needs to be given in real time and this is where it’s imperative that the pensions industry does more to embrace technology. Real time messaging is only possible where members can access and manage their pension through a mobile app. It’s the only effective way of pushing out messages quickly and at a point that members need it.

Don’t hide bad news, communicate more

It’s not about managing ‘bad news’, it’s about making sure people fully understand what is happening and what it means to them. The events in Ukraine and the impact on the market is again a great example. Improving understanding is the best method for pension providers and employers to support members in any situation, but especially through a market downturn. But it needs to be at the right time.

For example, shortly after the start of the Ukraine crisis, we at Cushion were able to push out a targeted in-app message to members looking to switch investments. It was only to members who were considering switching and at the point that they were thinking of switching. It was educating the right members at the right time, while not panicking others.

Transparency means no jargon

For members to really understand, we need to ensure our messaging is clear and concise. But, unfortunately, jargon still dominates the pensions industry and, ultimately, it’s stopping people making the most of their money. Engagement with pensions will remain low as long as the industry continues to use complex language that people don’t understand. For example, our research indicates that more than half (53%) of employees would save more into their pension if they understood it better. The onus is on pension scheme providers to make this change.

You can’t communicate too much

At times like this we should be focused on communicating more and making sure that any messaging is sympathetic to the financial pressures people face.

Our research shows that the rising cost of living is leading many to consider reducing their savings. For example, one fifth of 18 to 34-year-olds are considering either reducing or completely stopping their pension contributions. This is hugely concerning – people face immediate financial challenges right now, but at the same time the UK risks a future retirement poverty crisis.

It’s about balancing short-term financial needs with long-term financial needs.

But we can’t take the usual industry approach of scaring people about not paying enough into their pension when they’re struggling to pay their bills. Rather, employers should be transparent – letting employees know about all the options available to them, but being clear about the consequences, for example losing free money if they stop contributing to their pension.

Employers need to provide wider financial education that helps people manage their budgets and shows them ways to save money on everyday expenses, all of which helps lessen the need for people to think about reducing their pension contributions.

Tell people how you’re supporting them

Most employers are looking for ways to help employees through the current cost of living crisis, for example by introducing initiatives such as salary sacrifice so members can maintain their pension contribution levels but see an increase in their take-home pay. Solutions like this are great but are of no use unless people understand them.