At a networking event I attended lately, there was much talk about consumer financial engagement, an issue our industry has struggled with for decades. On this occasion the variety of opinions was notable.
Banging our heads on walls
One of the event’s speakers, describing research carried out by his firm, was adamant that any attempt by the industry to increase financial engagement was a waste of time. Consumers, he said, would rather “clean the lint from their tumble drier” than spend time organising their finances! Quite a claim, and certainly one to provoke some argument.
Could this be a genuine response to a survey question? Such a chore is not fun but is quickly over. In the short term the only reward is a warm virtuous feeling but ultimately it could prevent a house-fire!
Sorting out your pension can mean tackling bundles of paperwork full of jargon and unfamiliar concepts, which can seem quite daunting, and the reward could be decades away. Remember, nearly half of UK adults are less numerate than a typical 11-year-old, so suddenly even household chores may look more attractive.
Boiling frogs
Backing up the apathy message, we heard from an asset management firm about their experience of the US market. Automatic enrolment (AE) does exist as a concept there, but it is not mandatory for companies to offer a pension scheme at all. As a result, only around half of the working population has access to a workplace pension scheme. Of these, roughly a third are AE schemes. The evidence on participation rates is stark: where a scheme is auto-enrolled, around 80% of workers save into it, against about 50% for non-AE schemes.
Within AE schemes, opt-out rates also surprised. Typical US workplace schemes operate on a contribution matching basis with employers paying a dollar for every one or two dollars the worker contributes. Opt-out rates were highest for schemes with 2% contributions, and significantly higher than those with a 6% rate. It seems that higher rates don’t drive lower engagement in pensions. Could this be the good news the Pensions Regulator is looking for?
A third important finding was the success of “save more tomorrow”. Schemes which designed in a gradual increasing of pension contributions over several years, to coincide with pay rises, saw higher savings rates on average than other schemes, without an accompanying rise in opt-outs.
Gender imbalance
The event’s final speaker represented an advice firm targeting affluent and successful women. Ignoring her sweeping generalisations on the differences between gender attitudes – I believe these were based on observations rather than prejudices – she made a serious point about how men and women genuinely react differently to financial services on an emotional level, and how they focus on different needs. Women, she argued, are more family focused and value security above pure investment performance. Furthermore, they are not risk-averse but typically more considered in their risk-taking.
The debate which followed posited the theory that millennials’ social attitudes were blurring gender stereotypes and younger men are more than ever sharing equally in domestic as well as earning responsibilities. Meanwhile, our speaker emphasised the opportunity for investment firms to broaden their appeal by targeting communications towards the generations of increasingly influential and affluent women.
Finance can be fun
The overarching conclusion I would draw from these three disparate arguments is that the industry must make decision-making easier for customers. Inertia and defaults can go a long way to solving the immediate problem of increasing long term savings, but ultimately to get people to engage with finances more widely, it’s vital to speak to customers about what really matters to them. Just as some car-buyers seek acceleration and top speed while those with a young family may prioritise safety features and boot space, investors have different emotional as well as practical needs from their savings products.
Some fintech firms are trying to inject a little fun into the financial journey while talking the consumer’s language. A good example is EValue’s latest free-to-use virtual robot Fin (www.whenwillmypensionrunout.com) which asks you six questions, has a little think and spews out the most likely age your drawdown pot will run out (with a best and worst case scenario thrown in). Such deceptively simple innovation has real power to change behaviour. To create good retirement outcomes for everyone, we need to advertise tools like this and make them accessible to the people who most need them.
