Communicating investment effectively to DC members is one of the biggest challenges the industry faces. So should we bother trying to get members to understand the nuances, or just accept the situation and focus on delivering better outcomes?
While there is work to be done on the overall approach (for example, younger members might respond better to frequent, higher level communications that they can quickly digest) – the sad fact is we often see resistance from people being interested in and wanting to understand pensions, often until it is too late to change their outcome.
There are a number of reactions to this. We see some arguing for a simpler investment strategy – the idea being that this will be more easily understood by members and make pensions more accessible.
For us, there are two key problems with this approach.
First, from our long experience of taking schemes from basic equity strategies to more sophisticated outcome-oriented and risk managed strategies, very few members either understand, or are particularly interested in, what their underlying investment strategy actually looks like. How many DC members really know their equity from their credit from their gilts? Even if this is effectively put across, is it critical? There is still a big step left to understand what’s needed to retire comfortably.
Second, we think that dumbing down investment strategy in the name of overall ‘simplicity’ is a dangerous path to follow. An investment strategy lacking in investment sophistication can lead to unstable returns and inconsistent member outcomes. To us and our clients, a well thought out investment strategy designed around scheme-specifics and what members actually need is fundamentally important.
Perhaps it’s time to rethink what key message we want members to take away from the communications they do receive, and simplify that. Many examples of member communications place a lot of emphasis on the current snapshot – asset allocation breakdowns, investment returns over the year and the like.
Of course, this is important information which needs to be disclosed, but should it be the takeaway message? Simplifying the outcome – for example, putting front and centre a ballpark ‘pot’ size that members are likely to need to comfortably take home £x a year during retirement (which will be a lot higher than many expect) will achieve much more in focusing minds.