The Canadian Leadership Congress hosted its inaugural DC Plan Experience in Toronto on February 9th. The focus of the day was plan members and their needs, from understanding what their pain points and challenges are to innovative new ways to help them through to retirement. To help us out with the discussion, we invited Will Sandbrook, managing director of Nest Insight, the research arm of the UK government’s workplace pension plan Nest. He focused on his experience with engaging plan members, including his perspective on what works and what doesn’t.
Auto-enrolment has been a success
Nest’s nearly 11 million members didn’t choose to start saving for retirement – they were brought in by choice architecture, said Sandbrook. While enrollment into a qualifying plan is mandatory for employers, individuals can opt out. “On average, 8% of individuals enrolled choose to opt out,” Sandbrook noted, adding that number is well below initial forecasts of 25% to 30% when auto-enrolment was first introduced.
At Nest, Sandbrook explained, the vast majority of members choose to save in the default fund with fewer than 1% of members making an active fund choice. Contributions are also automatically set and were stepped up steadily between 2016 and 2018, moving up to 8% today. Of that amount, individuals pay 5% and companies match the rest. Interestingly, says Sandbrook, this increase did not have a significant impact on the opt-out rate and members remained enrolled. The pandemic didn’t impact enrolment numbers either despite significant challenges in the labour market.
Passivity is still a problem
While they are being enrolled, getting people to engage with their Nest plan is still a major challenge – it’s very hard to get them to register online. As Sandbrook explained, only 30% of members actually register their account online despite efforts to boost that number.
Never say decumulation
Sandbrook says Nest never uses technical terms like decumulation and annuitization and has specific rules and guidelines around the language used to talk to members. “We’ve tried to really simplify the language and talk about things like taking a retirement income,” he explained. “As part of that, we’ve done a lot of work to simplify our member welcome package to make it more compelling and try to increase the call to action, again, to trigger that initial registration action.
Life events weren’t an effective engagement tool
Sandbrook discussed how Nest’s research on engaging members at specific life events such as getting engaged showed mixed results – people do reference life events as triggers to engaging, but those life events are just as prevalent among the disengaged so “there’s clearly something more going on behind the fence beyond simply those life event triggers.” Similarly, discussions of responsible investing or ESG were ineffective in getting more people to engage or register online.
Going beyond retirement savings
One potential area for engagement could be tied to a more personalized approach to saving. While some struggle to meet their expectations in retirement, there are others who might be saving enough or even too much. Still others could be carrying high-cost or problem debt. “There’s the question of whether some of these defaults are too strong,” Sandbrook explained. To address this, people could be allowed to contribute a lower percentage than the default – or they could access some of the money contributed before retirement if needed. This is an area of further study for Nest Insight.
Personalized nudges are the future
There are engagement opportunities within the broader financial behaviour ecosystem Sandbrook explained. For example, using open banking or engaging members through a member’s retail banking app. “I think there is an increasing role for more personalized nudges or hybrid products that allow people to save a pool of money and then split it based on some nudge or recommendation across short- and long-term goals, short term saving, and pension saving.”
For more information about our DB and DC plan events, please contact CLC co-CEO Joanne Boccia.