"Pension funds must provide participants with a much more customized service"

A View from Outside

We all know we should plan for “an income after retirement”. But that doesn’t mean we will do something about it today. Because we don’t feel like it, it’s too abstract, it’s too complicated. How can thinking about a pension become exciting? In the series A view from the outside, psychologists, behavioral scientists and marketers take a fresh look at the pitfalls, opportunities and challenges. This time: Lisa Brüggen, professor of financial services at the University of Maastricht and an expert in pension communication.

In Lisa Brüggen’s opinion, pension providers should be more aware of the fact that “pension” can mean something different for everyone. Everyone has a different picture of what the word pension means. “And it brings up different feelings for everyone too. One person knows exactly how much they have accrued and how much they will be getting when the time comes, and another person is wrongly pessimistic about their pension. Yet another is wrongly optimistic about what they will get every month after they retire. As a pension provider, you should really communicate differently with all those people.”

That is not happening now?

“You often see the pension provider thinking hard. What do we want to say? What do we want the client to do or not do? But they’re not thinking enough about the individual life circumstances of the client. For the participant, pension is not just one thing by itself; it is just a part of a much bigger financial picture. How much you have to pay for insurances,  how much your mortgage is, whether you are able to save for the kids as well, or whether you’re temporarily making more money or less:  it’s all connected. I’m not sure if it’s feasible, but it would be great if pension providers could map out that whole picture in an easily accessible way, in the future. So that people can always check and see how they are doing financially and how their future pensions fit into that picture.”

What would that look like?

“What I’d like to see is pension providers being able to analyze all the available financial data automatically and then offer a kind of periodic financial statement based on that. Free, accessible and reliable. It would give participants an overview of their financial plan and also provide insight into what they might want to change. More customized solutions and more focused on the personal situation. I think there is a great need for this.”

After years of research, Lisa Brüggen is convinced that communicating about pensions is custom work. Because how you deliver a message, what language you use, how you write the text, in what order you offer the information and who will receive the message: it all makes a difference. A Netspar survey this month revealed that when people are choosing options regarding their pensions, they are influenced by the way those options are presented.  The order of the questions and pre-completed options can be used to “push” someone into a particular option, for example whether or not to opt for a temporary premium suspension. Lisa Brüggen feels these are exactly the type of insights that the pension sector should use more. “In the advertising and marketing world they’ve known for a long time that you can stimulate people’s behavior with a strategically designed message.  Pension providers also know this, in theory. But they’re not making enough use of this.”

What should be done differently?

“They could be more focused and more strategic in their actions. It is important for communication goals to be formulated clearly and specifically, and that the communication methods are aligned with this. And then, you have to measure if the goal is being reached with those communication methods. How they are communicating with people about their pensions, using what medium, what message they are trying to get across and how that message is presented. Currently this is still being done more or less intuitively. It should all be more evidence-based.”

Can you give an example?

“If you want to motivate people to start thinking about their pensions or if you want to entice them to pick an option, how you present it will make all the difference. Research I was involved with in 2017 showed that even just the way a message is framed can make a big difference. In that research project, people were shown a text that was intended to motivate them to click on a link where they could find out more about their pension. For one group of respondents, the ‘investment frame’ was used, which primarily emphasized the profit to be gained by exploring their pensions now. For the other group, the ‘assurance frame’ was used, which primarily stressed what problems people could prevent by paying attention to their pensions now. People who got the ‘assurance frame’ clicked on the link nearly twice as much as the other one. This is an interesting outcome for pension providers that want to get their clients to take an interest in their pensions.”

Why do you think pension providers are making so little use of this?

“That dates back to the past. Twenty years ago, there was no need to communicate with consumers about their pensions. The interest rates were high, the pension system was solid, people often worked for the same employer for half of their lives. For pension providers there was no immediate need to enter into any dialogue with their clients. The nature of communication was mostly technical, financial and legal at that time. It didn’t require any communication specialists.”

But times have changed…

“Exactly. We are now dealing with low interest rates. People who change jobs much more often than before. And that has created much more uncertainty about the accrued pension. So, there is a much greater need to be able to communicate with participants in an effective and focused way about their pensions and their opportunities. Pension communication has become increasingly important. But in the corporate culture of pension providers, the financial side, unfortunately, still has more status than the communication side.”

How does that show up?

“Here’s a small example: if there are two speakers at an event and one of them is there to show insights about pension communication and the other one is there to speak about the financial side, the managers will go to the speaker that’s talking about finances. And at organizations, I’m seeing more and more that communications professionals are being consulted, but that their carefully thought-out strategies and advice are often superseded by impromptu plans. Plans that may sound good, but that have no scientific basis. Communication is still often seen as something that anyone can have an opinion about.”

Where are the opportunities?

“More focus on evidence-based communication strategies. Sharing more information within the sector. And more attention on what pensions mean in people’s lives. Within the bigger financial picture. In short: looking at pensions from the perspective of the people, instead of looking at people from the perspective of pensions.”