Employees who work for employers that offer a limited choice of investment options for their workplace pension scheme are likely to be more engaged in retirement planning than staff who are offered a vast choice.
Speaking at the National Association of Pension Funds annual conference 2014 in Liverpool on 16 October, Karen Heath, chief engagement officer at employee benefits communications consultancy AHC, said: “In a world with limitless choice, it is very easy to think that more choice is actually better for us, however there is lots of evidence that suggests that the reverse is more often the case.”
When Heath polled the audience about the number of funds that they currently offer staff, 64% said they offered between five and 10 funds. A separate poll found that 37% of the audience plan to decrease their fund offering within the next three years.
She explained that the factors that influence employees’ decision making when it comes to pension fund choice, include emotion; whether employees are being asked to make a decision for the short term or long term; a lack of confidence, a fear of making the wrong choice; procrastination and inertia; what their peers are doing; and at the root of it is a basic human desire to make no decision at all and to let sombody else choose for them.
Heath referenced a Harvard University study that explored the difference between short-term and long-term decision making by asking a sample group of employees to choose between fruit and chocolate by way of a treat. Researchers found that 74% of the group opted to receive fruit in a week’s time but when they were offered the choice one week later, 70% actually opted for chocolate on the day.
“When we try to make a decision for the longer term, we try to think about the decision that we should make, such as fruit, but actually when we want immediate gratification it is chocloate that we all crave,” Heath said, proving the importance of workplace retirement planning support.