Strategy & Operations » Life events: solving the pension engagement dilemma?

When it comes to retirement, the majority of individuals are not aware of the value of their pension pot, with only the minority of savers engaged with their pension scheme. As a result, employers and pension providers are finding it increasingly difficult to communicate effectively with individuals, with online accounts often remaining inactive and written communication unopened.

This is particularly noticeable amongst automatically enrolled savers. While the initiative has resulted in over nine million people having been enrolled in a pension scheme, this group of savers display higher levels of inertia compared with those who have actively signed up to a pension scheme.

On the other hand, pensions are a long-term savings mechanism, and the use of carefully designed default pathways mean it’s not essential for individuals to be actively involved with the scheme on a daily or continuous basis. Such action could potentially deter an individual from saving if they observe the pension pot fluctuating – as happens with all investments. However, if an individual’s estimated pension pot value is lower than the amount they’re likely to need in retirement, being engaged and aware of this means the saver can take action and save more before it’s too late.

So what action can employers and pension providers take to improve engagement among savers? Is the timing of a communication crucial to successful engagement? And are individuals more likely to take notice of pension information around key life events?

What is a life event?

It’s thought that savers may be more receptive to pension communications during certain life events. For example, starting a new job, becoming a parent, buying a house, or round-number birthdays constitute life events. During these events, an individual experiences economic impacts – measurable changes to the amount of money they have or a change to the riskiness of their finances – and non-economic impacts – changes to their wellbeing or health and life satisfaction. These points in time create “teachable moments”, which increase perceptions of personal risk, prompt strong emotional responses, or redefine self-concept or social role.

As a result, individuals are more likely to be considering their finances and their future, meaning that they could be more likely to engage with their retirement savings.

However, life events can also create stressful environments and do not automatically result in increased pension engagement – to do so would be time away from the many pressing tasks that often go hand in hand with life events, such as packing or redecorating.

So, with this in mind, how might savers respond to pension providers and employers leveraging life events to increase pension engagement?

Insights and challenges

NEST Insight, in partnership with Maastricht University and Netspar, carried out a research project, conducting interviews with industry experts and pension savers, and surveying NEST members through an online questionnaire. The research found that among engaged savers, life events had spurred them to consider their finances and, in some situations, had encouraged them to increase their pension contributions or switch funds. However, among passive savers, pension engagement around similar life events had not been triggered – reasons for which could be attributed to a variety of factors, including age and gender, and whether the individual had experienced a teachable moment but had not received tailored pension communication.

In other cases, savers said that some life events had increased their mental and emotional load. As a result, they had less room to focus on the long-term, instead concentrating on urgent and short-term needs rather than long-term financial considerations.

Despite this, individuals said they would value personalised communication adapted to their own situation. But there remain questions about how providers would implement this. While some events are easier to anticipate given accessible information on the individual’s date of birth, income and address, others – such as buying a house – are difficult to identify. The research found that potential remedies, such as using big data to gather the information, generated mixed opinions from individuals – some responding enthusiastically, while others being completely opposed.

Next steps

NEST Insight’s research goes a substantial way to attempting to answer whether life events hold the key to pension engagement. Yet more research is now needed to truly determine whether employers and pension providers can increase engagement by adapting their communication strategies to correspond to savers’ life milestones. If further findings shed a positive light on the matter, then it seems that personalisation will become increasingly integral to pension communication, ultimately driving individuals to engage with their savings.

Find out more about life events and pension engagement.