As many people find the whole subject of pensions dull, it is therefore vital for those in the industry to use clear language when dealing with the subject and talk to people in ways that will grab their interest
It is a well-known fact that pensions are dull ' that is one reason people are not interested in them. Another well-known fact is that people in the UK need to save more for their retirement. And here we have the problem in a nutshell. If we really want to start to bridge that savings gap we need to get people interested in pensions.
At a recent pension conference that I attended, three remarks stood out for me:
• People do not understand the need to save.
• People don't have a clue how much a pension costs.
• Employees do not feel better off by being members of an employers pension scheme.
There is clearly a huge customer education challenge here. If people do not see the need to save, do not know the cost and don't feel the benefit when they do, it is small wonder that so few of them bother.
I am in a rather difficult position, since I am writing this before the Green Paper has been published but you will most likely read it after the Paper comes out. My hope is that among all the work on simplification of products and regulation, new tax rules and pruning of red tape, the Government has found space to suggest concrete proposals for a public education campaign on pensions.
Assuming that is the case, I have three key suggestions:
• We should start with the basics
• We must watch our language
• We need to talk to people in ways that will get their interest.
To be fair, progress is being made on the basics. If we are to persuade people to save, they need to have a clear idea of what they can expect to retire on. Only then can they work out what they need to do.
The Statutory Money Purchase Illustrations due to start next April provide the basic building block. And since they will show benefits in real money instead of monopoly money, they will, if used positively, act as a call to action in terms of making realistic savings.
The next important steps are the combined statements and ultimately the composite pension forecast. Combined statements will show private pension plus State benefits and so start to build the overall picture.
These have been piloted and will be taken forward ' although since each private sector pension would issue its own combined statement there are potential problems with double counting the State benefits.
Ultimately, the goal is the composite pension forecast, which would show each customer all his or her expected benefits on one piece of paper. Or on one website perhaps?
Technically speaking, composite forecasts present huge challenges. But we should not underestimate how powerful a tool they would be in getting across the message that people need to save and need to be realistic about the amount they save.
The language used in this campaign would be crucial. And that applies both to industry and to government. There is no point in using words like accrual rates, commute and cash equivalent transfer values.
A campaign couched in those terms might as well be conducted in Martian for all the good it would do. Let us be honest, commute is what normal people do on trains ' when they retire they give up part of their pension in return for a tax free lump sum.
And, crucially, we need to interest people. Worksite marketing has much to offer in this area. Many providers are now producing excellent material that can be used to help increase take up of employee sponsored arrangements or show individual members how they much can benefit from making additional contributions.
But what about a wider campaign aimed at the general public? A colleague recently told me about a website called www.retireonyourterms.org. This US site includes details of the Retire on Your Terms Education Program, with the home page including a message from the National Retirement Planning Coalition Spokesman Senator Bob Dole, and a letter from no less a person than the US President showing his backing for the campaign.
It has a list of the top ten ways to prepare for retirement. It has links to other sites ' like the National Preretirement Education Association. I managed to find a pop psychology quiz to discover my retirement planning personality profile.
I am not suggesting we need to slavishly copy this particular approach. For a start, we might get more interest, particularly from young people, if David Beckham rather than Tony Blair endorsed the message. But who can doubt that we desperately need this sort of initiative?
Years ago, on a management course, I was told that the key to motivating people was to make your message personal. We need to motivate people to take a personal interest in their own pensions.
I hope that by the time you read this, you will have seen from the Green Paper that Government intends to lead us in this direction.
SMPI came about because the Government wanted to see annual benefits statements for money purchase contracts. Not only that, but Government wanted these benefits statements to be calculated on a common, statutory, basis for all money purchase contracts.
The new statutory basis must be used for all benefit statements from April 2003 and applies to almost all money purchase contracts, the exceptions being Section 226, individual proposed Section 32 (it does apply to Trustee proposed Section 32) and Ssas where all members are Trustees.
If we really want to start to bridge the savings gap, we need to get people interested in pensions.
Combined statements will show private pension plus state benefits and start to build the whole pension picture.
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