If you read nothing else, read this…
- Increasing emphasis on face-to-face communication could be part of a wider trend among employers to be more actively involved in the governance of their contract-based defined contribution pension schemes.
- Employers may have overestimated the effectiveness of online communication; staff do not seem to rate it as highly.
- There is evidence that face-to-face communication, particularly on a one-to-one basis, may help to boost employee take-up and contribution rates.
- The best method of communication will depend on the message and audience.
The tide is turning away from online and back to face-to-face communication for DC pension schemes, says Peta Hodge
Face-to-face communication around contract-based defined contribution (DC) pension schemes is experiencing a resurgence, having been sidelined for a while by online alternatives.
Simon Fletcher, client relationship director at Johnson Fleming, says this renewed emphasis on face-to-face communication has partly been driven by The Pensions Regulator. “It talks about the favoured face- to-face communication almost as if it sees it as a panacea that cannot be achieved,” he says.
The essence of contact-based schemes, such as group personal pension and stakeholder plans, is that the employee has a direct contract with the provider, allowing the employer to be relatively hands-off. But Trevor Rutter, a communications consultant with Mercer, says that although face-to-face communication never went away, a renewed emphasis on it may indicate that contract-based DC schemes are entering a second phase, with employers increasingly concerned with scheme governance.
For example, a growing number have voluntarily set up governance committees to make sure, among other things, that investment options remain valid, charges are fair and communication is ongoing.
Take-up and contribution levels within DC schemes have become more of an issue over the past couple of years as investment volatility has threatened to undermine employees’ confidence. At the same time, the wider economic downturn may have affected workers’ willingness to tie cash up in pension savings.
Realistic view of online alternatives
This may all add up to more face-to-face communication as the market takes a more realistic view of the online alternatives, says Alexina Higgs, senior investment consultant at Buck Consultants. “We all went a bit mad for online communication for a while and now the dust is settling,” she says.
Hymans Robertson’s 2009 pensions communication survey, The great divide: bridging the communication gap, published in December, contained the telling statistic that, whereas half of employers saw the company intranet as the most immediate form of communication, fewer than one in five pension scheme members agreed this was the case.
Data from a leading telecom and datacom technologies provider, following the restructuring of its DC arrangements, points to a similar conclusion. The survey of this organisation, which was conducted by provider Johnson Fleming between December 2009 and February 2010, found that only 12% of employees had used its pension website, and just 0.7% felt this method of communication was of most benefit to them. This compares with 67% of staff who said a one-to-one meeting was most effective and 31% who favoured group presentations.
Fletcher says: “This is absolutely typical of what we have seen with members of other client schemes and my guess is they are probably typical of the market.”
However, Higgs has slightly more faith in the effectiveness of online communication. “On an ongoing basis, it is effective for about 30% of the audience: those people who are really using modellers and tools,” she says.
Age may be one factor determining the effectiveness of online communication. Keith Hollender, commercial director at the National Association of Pension Funds, says feedback suggests younger employees are generally happiest with online communication, whereas their older colleagues prefer the human touch.
Getting employees engaged
Where online pensions communication tends not to work so well is in getting employees engaged with DC schemes in the first place.
Darren Laverty, director of Secondsight, says that, from a psychological point of view, just 10% of communication is carried out verbally, and 40% is in how words are said. “The tone of voice is four times more powerful than what you read on a page.”
The remaining 50% of communication is made up of non-verbal signals such as skin-tone, eye contact, body language and gesture. “So 90% of communication is non-verbal,” he adds. “Online just cannot work.”
When using only online communication methods, average take-up rates are about 63%, says Laverty. But with face-to-face input, this increases to 74%.
How a pension scheme is communicated can also affect employee contributions levels. For example, after face-to-face intervention, average employee contributions of 3.9% of pay are increased to 6.8%, he says.
Steve Watson, head of DC at Alexander Forbes Financial Services, adds: “Where we manage schemes with face-to-face consultations for members, the average contributions made by employees to their pension schemes are about 85% higher than the average figures published last year by [consultancy] Aon. Where the benchmark for employee contributions was an average of just 3.5% within the research, our schemes have an average of over 6.4%.”
But employers must consider whether such results are enough to prompt them to adopt face-to-face communication, particularly on a one-to-one basis, which is generally seen as time-consuming, logistically difficult and expensive. But Fletcher says that because such communication can be outsourced, it need be no more onerous for the employer than a website.
“It just takes careful planning,” he says. “It can be expensive; it depends on how employers want to structure their arrangements. Many employers have annual management charges in their contract-based pension schemes that can incorporate face-to-face communication.”
But in most cases, the communication of DC schemes will not be an either/or decision between face-to-face and online methods. Most employers will want to use a bit of both, and a whole lot more besides.
Higgs explains: “As a communicator, [employers] have always got to ask: ‘What job am I trying to do? What is the audience I am trying to reach?’ When employers are trying to promote an action, that is when face-to-face communication works really well. Online is good for maintenance.”
Case study: Personal touch breeds loyalty at Fidelity
Fidelity National Information Services achieved good results by using face-to-face methods to communicate its group personal pension (GPP) scheme.
After a number of acquisitions, the company wanted to harmonise its pensions and provide a new, more competitive scheme. Julie Chell, HR director for EMEA, says: “We were concerned people did not understand the new scheme and why we wanted to change things. We worked with Foster Denovo on a communication strategy.”
At the heart of the strategy was a group presentation for every employee, followed the same day by an individual meeting with a pensions adviser at which the new GPP was explained and more general questions relating to the individual’s situation answered.
As a result of the communications programme, membership of Fidelity’s pension scheme increased from 40% to over 70% and average employee contributions rose from 3.1% to 6.8%. In addition, 85% of employees said that they gave the pension scheme a higher value as a benefit, while 56% said it was a reason to stay with the company.
“We could have transferred people more quickly, but taking the time to talk to people as we did actually gave us far higher, more positive results based on what we were trying to achieve at the outset,” explains Chell.
- The average employee contribution to a DC scheme is 3.5%, according to the 2009 Aon Benefits and Trends Survey, published in October 2009.
- 51% of employees say receiving information personally from their employer, either verbally or via email, is most likely to make them take action, according to Hymans Robertson’s 2009 pensions communication survey The great divide: bridging the communication gap, published in December 2009.
- Half of employers see the company intranet as the most immediate form of communication, but fewer than 20% of pension scheme members agree, according to the same survey.
- £97 was the value, in March this year, of £100 invested in September 2007, according to Aon’s DC Index.