Making a difference: investing in the future of pensions

Pension Communications | Insights

Susannah Hines , Client Services Director

13 Jul, 2021 · 5 -minute read

In his book ‘The Paradox of Choice: Why More is Less’, writer and psychologist Barry Schwartz talks about how, when making everyday decisions, having too many options has become a problem – not a solution.

In theory, you’d think that having an abundance of choice would help people easily decide what works best for them; in practice, however, facing a large selection of items with a variety of benefits and drawbacks can make it very hard for people to choose.

This is so true when it comes to pensions – and that’s without even getting into scheme types.

Should I have more than one pension? Where do I invest? How do I invest? Do I get a personal plan too? Do I go with salary sacrifice? How do I know what my money is doing, where it’s going or if it’s safe? Which investment choice is right for me? When’s the right time to take my money out? Draw down, lump sum or annuity – what’s best option? Do I switch funds? When? Where? How? I’ve come into some cash – will I end up getting hammered on tax if I invest? How do my other assets impact my pension savings? What happens to my money when I’m gone? Who else can get their hands on it? Why is this so purposefully difficult?

Analysis paralysis

‘The fact that some choice is good doesn’t necessarily mean that more choice is better,’ observes Schwartz – and he’s right.

But there’s nothing wrong with taking time to consider your options when making important decisions, it’s completely normal.

The problem lies in spending so much time weighing up your choices that you fail to make a decision at all; in becoming so overwhelmed that you deem it too complicated to pursue any further in fear of doing the wrong thing.

Sound familiar? This type of overthinking has a name: analysis paralysis – and it’s so easy for members to fall foul of it at all stages of the pension lifecycle.

For those starting out, pensions can be daunting – to say the least. And while paying in the minimum through auto-enrollment is far from perfect, at least it’s a gateway to ‘a’ future for many. The danger lies in the disengagement factor that comes with not having to think about nurturing your investment or trying to make sense of what feels like a legislative minefield.

For the more engaged member – those who really want to make the most of this valuable employee benefit – it’s easy to become overwhelmed by potentially reacting too soon, moving money without giving the investment time to settle, not taking a long-term view when it comes to investing, figuring out how to allocate your money between homes, savings, ISAs, pensions, and deciding whether to spend now or save for tomorrow…

So is the problem here really that there’s too much choice? Or is it the way in which these options are presented to people that’s the crux of the issue?

It’s an interesting dichotomy – and a true challenge when it comes to communicating the personal benefits of saving into a pension scheme.

Susannah Hines

Client Services Director

PR problem

Pensions have a serious PR problem here in the UK. There’s no wonder it’s so difficult to get the younger generation out of the auto-enrollment comfort zone and actively interested in investing in their future.

The word ‘pension’ itself is somewhat disconnecting for many. Becoming an ‘old-age pensioner’ isn’t just borderline depressing for the younger generation, it’s way too far into the future to worry about today (let’s face it, who knows what the retirement age will be for today’s 20-year-old first jobber).

Then there’s the fact that pensions are just so complicated – and when you throw in the perception that you’ve got to be some kind of maths genius to even begin to understand what you need to do to get started, things aren’t exactly looking ‘influencer-worthy’, are they?

So, really, how is any of this appealing, relevant or interesting to anyone under 30, 40 (or even 50) these days? Especially when you consider how COVID-19 has impacted many people’s personal finances, fostering something of an attitudinal shift when it comes to the ‘real’ value of money.

Where’s the emotional connection for the younger generation? How can they relate to a future which, right now, is more unknown than ever? And how do we compete with the engrained FOMO of Generation Z onwards?

The past 18 months have been tough for a lot of people in myriad ways. It’s safe to say that, paying into a pension pot might not be at the top of everyone’s post-pandemic priority list at the moment.

Because of this, the need for help and guidance around financial wellbeing has never been more necessary – and that’s why we need to start getting personal.

Lifestyle choice

To shift the narrative, we need to move away from the idea of the workplace pension being a cold hard financial transaction, a means to an end, or a post-career contingency plan.

And the trick to this lies in flipping the way we present information to members – looking at re-framing of the pensions proposition to focus on the ‘how your money makes a difference’ element for those who pay into the scheme (and those who don’t – yet).

We need to focus on the lifestyle factor, making it aspirational but realistic; self-serving but grounded in a moral standpoint.

We need to help people realise that paying into a pension isn’t really about the money; it’s about the opportunity that investing in your own future can give you – and others.

So let’s change the conversation, placing sustainability at the centre and helping people understand that it’s all about finding the right fit for you, your family, your community, your legacy.

Let’s re-frame pensions as a ‘lifestyle choice’, start talking about the socio-economic impact of investing in ethical funds and helping members understand what other people, just like them, are doing about their financial futures – and let’s do it in an engaging, inclusive and accessible way.

Ethically speaking

The truth is, aspiration is age neutral. This is about engagement for the young and awareness for the not-so-young.

Because right now people of all ages are tuned in to changing the world, protecting the planet and building a society that gives a damn about the next generation.

Sustainability, responsibility and authenticity matters, which is why it’s so important to shout about the fact that ethical investment choices in pensions really do exist – and to shout loud enough that people listen.

Because the people that matter – the investors of the future – probably don’t know this.

Which is why we need to show members that they can be true to themselves by investing in the causes they care about – this is about paying it forward, giving yourself permission to save with a clear conscience.

The belief that you need to hanker down during a crisis and invest in tried and trusted safe havens has all changed in recent years and continued during the pandemic. Funds that have invested in environmental, social and governance (ESG) activities have outperformed their benchmarks this year. We’re witnessing a major and sustained change in behaviour – and not just among the younger investor.

It’s all about a sustainable lifestyle and supporting important sectors, such as healthcare or low-carbon businesses.

It’s all about balance – of people and planet against profit.

It’s not about selling out, it’s about putting in and investing in the future – of themselves, their peers, their planet.

‘Choose less and feel better,’ says Barry Schwartz – there’s definitely something in that, isn’t there?

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