Helping savers understand investments

A back to basics approach from pension schemes can help members better understand their investments.

Today, many of us are savvy consumers. TV and online content shows us how to make mortgages, credit cards and the weekly shop work for us - but pensions get less coverage. We’re less tuned into the potential returns on retirement savings. So how can pension schemes help members better understand investments?

Back to basics

Not everyone realises that their pension is an investment. In fact, a 2021 survey by Hargreaves Lansdown revealed that only 35 per cent of people know that their pension is invested in the stock market. And 32 per cent said they didn’t know what happened to their money. Perhaps that’s because members’ contributions are referred to as ‘savings’, so it’s assumed that money is stored in an account until retirement.

A back to basics approach to investment communications could help. Investment guides could benefit from a summary section at the start, with a high-level explanation of a pension as an investment. This could include an overview of which asset types that money is invested in, and how assets combine to form funds. It’s worth introducing the risk attached to each asset type too, and how investment levels within funds can change on the road to retirement.

Investment guides can be long documents, so a layered approach could also be considered. This could include a separate communication that pulls out the investment guide summary, as a member education piece. Or perhaps shorter nudge communications that draw from this content, to get members thinking about their investments.

Next steps

Once members have grasped the basics, they’ll be ready to think more about their invested savings - and how making changes can affect their financial futures. For DC members this could involve selecting their own investments, while DB members could choose to invest AVCs in different investment funds.

Trustees have different opinions about this. Some are comfortable to encourage members to consider their investment choices. Others are wary. So it’s worth noting that membership knowledge should be considered when approaching communications around investments.

The broader picture and ESG

Beyond their own finances, today’s investors want their money to fund companies committed to a better world, not just profits. By considering environmental, social and governance investing (ESG), members can do the right things for our planet and the people on it.

Standalone communications that educate members on the importance of responsible investing could be effective. These communications could prompt members to consider not just the moral implications of their investment choices, but also how ESG factors affect an investment’s performance in the market - and its returns.

Helping members to understand investments is an important part of driving their engagement with pensions. Using tailored communications that start with the basics and then build on this knowledge can help empower members to take control of their finances, and make a tangible difference to their own financial futures and beyond.

Sources

Only a third of people know that their pension is invested Corporate adviser