Do’s and do nots for pension scheme advisers

Research from investment management firm Invesco has highlighted what phrases advisers need to avoid and which ones they should use when talking about defined contribution (DC) pension schemes with their clients.

Avoid

1. Dream retirement: claiming to be able to provide the ‘dream retirement’ risks losing credibility with investors. Customers respond more positively to assessing their ‘retirement goals’.
2. Low cost: this only translates to unreliable services for the investors. Instead, focus on the cost efficiency of the DC scheme.
3. Comparison with peers: motivation through peer pressure and fear-based tactics have been proven to disengage investors and lose their confidence in the scheme. Personalisation is key, so talking about their personal progress instead of comparing it to others is a more effective way to engage with members.
4. Salary sacrifice: investors only understand that they are losing rather than saving money. However, scheme members respond more positively to talking about their retirement ‘contribution’.
5. Reduce the number of cappuccinos/coffees they buy a week: prioritising delayed satisfaction over immediate gratification has been proven to be a very ineffective method with investors. They are more motivated by engaging with tax benefits, cost efficiencies and long-term investment growth.
6. Autopilot: although having things done for them can attract members to a scheme, feeling like they have no control over their DC can result in a lack of confidence. Stress, instead, the benefits of automation without implying a lack of control.
7. Access to institutional investments: customers are mostly unaware of what these types of investments are and of their benefits. Explaining and negotiating better terms for their schemes results in greater confidence in the adviser’s abilities.
8. Risk of pension poverty: fear tactics have been largely proven to be very inefficient. Empowering communication and explanation that a larger contribution could lead to a more comfortable retirement creates a more positive attitude.
9. Compounded growth: industry jargon is not the way to increase confidence in investors. Speaking in plainer terms is shown to be a more effective method.
10. You don’t need to worry about…: scheme members don’t like being told what they should and should not worry about. Instead, advisers should explain how they are going to navigate the challenges and options available to them.

Use

1. Positive messages: 70% of scheme members interviewed by Invesco would prefer to hear about investments that maximise their growth rather than minimise their losses.
2. Credible benefits: investors are more likely to respond positively to clear, realistic benefits rather than talk of a ‘dream retirement’; 58% of those surveyed prioritise a comfortable retirement over a less plausible dream situation.
3. Plain speaking: being able to understand their choices is a priority for investors. Therefore, direct and honest language about their pensions is more effective than industry jargon (eg, use ‘growth’ rather than ‘compounded growth’).
4. Personal: a personally tailored scheme is more appealing than a one-size-fits-all option, according to 70% of respondents.

Commenting on the results of the research, Stephen Messenger, UK institutional sales director at Invesco, said: “Our extensive study into the language of defined contribution pension schemes reveals many of the words and phrases used within the industry did not connect with their members.

“Employees want confidence that their investments are right for them; the language that is used to communicate this is extremely important.

“Our study proves that in order to get employees engaged with a technical process, it is vitally important to use the right words.

“By using language that is positive, plausible, plain-spoken and personal, schemes can connect and engage with its members.”