Bad news travels
Gail Moss sets out the best ways to get unwelcome information across to members
Thanks to potential underfunding, most Dutch pension schemes have already announced they will cut pension payments. And, says Alfred Kool, communications strategist with Towers Watson in the Netherlands, around 70% of pension scheme members have no idea how much income they will get when they retire.
"It is more important than ever for pension funds to get their key messages across to members," says Kool. "But trust in financial institutions is at a low level, and that means it's difficult."
So how can pension funds ensure they convey the right messages, and that members understand them?
Some schemes will be subject to legal rules on the frequency and content of reports to members - for instance, funding statements.
But there is a lot of scope for conveying clear messages over and above this.
These messages will vary, depending on whether the target audience is pensioners, deferred members or active members, and whether the scheme is a DB or DC plan.
"For DB schemes, the message is about reassurance, stressing that there are proper procedures in place to protect the investments," says Hannah Clarke, senior pensions communications consultant at UK-based Ferrier Pearce. "For DC schemes, it's the members who are taking the risk and they need to be educated about the choices they must make."
However, telling pension scheme members the bad news should be only part of an overarching communications strategy. Regular and effective contact with members should be the norm, and pension funds should consider whether they need external help.
"If communications are well-established and members have been educated about the scheme, then bad news can be incorporated in advance," says Clarke. "Otherwise, people may panic."
Here, a basic rule is consistency, says Claus Skadhauge, head of communications at PKA. "Are you consistent in the way you communicate?" he says. "What did you say previously? What will you say later on?"
Skadhauge emphasises the importance of thinking ahead: "Members will remember what you tell them now. But if you change the basic message and arguments whenever you are challenged, you will lose credibility, and when times are hard, this is the last thing you want."
Another must is to focus on what has to be said, rather than blur the message and hope it gets across without embarrassing the pension scheme. "Don't try to hide bad news behind a mess of other news - such as covering up the fact that pensions are being lowered, by a mix of different changes in scheme benefit structure," he says. "The problems will catch up with you, members tend only to see the good news and will then deny there was a piece of bad news in your letter, or article."
So the key, he says, is to create a few basic messages and roll them out in different forms, depending on the channel and target group.
According to Skadhauge, there are ways to put a positive slant on supposedly bad news. "‘Pensions will not be raised, but they are prolonged' is a sentence we are using where new longevity paradigms have been introduced," he says. "We explain to members that lifelong annuities do mean lifelong, and we show them how much extra money must be put aside to ensure that."
Besides content, the style and language of communications need to be tailored to each member, and this means segmenting the workforce.
This could be done not only in terms of age, salary bracket and type of job, but other characteristics as well.
"Funds tend to focus on age and address but not much more," says Kool. "But it's important to know what the worker's intellectual level is - what interests they have, whether they read books at all and how they normally get hold of information."
He says a lot of this information can be obtained through HR. "The employer is often closer to the employee than the pension fund," says Kool. "Furthermore, the pension plan is a term of employment paid for by the company, so it is a good thing if the two parties can work together in sharing information."
This should mean there can be as much personalisation to the member as possible. "This gives the impression the pension scheme knows them, and if you get a message from someone you know, you probably take it more seriously," says Kool.
"Address people by their preferred name on the covering letter," advises Clarke. "That could be Mr or Ms X, their first name, or their nickname - Mike instead of Michael, for instance. The letter should also be signed by an individual, for instance, the chair of the trustees."
And she says the tone of the language should be what people would expect from any blue-chip company: "Employees should feel as valued as external customers."
This personalisation also lends itself to creativity.
In the Netherlands, for instance, some funds see the member's fortieth birthday as an opportunity, sending them a birthday card along with whatever message they want to convey. As a birthday present, one pension fund sent out a voucher for a consultation with an independent financial planner.
"This helps people get more of a handle on their financial situation, which may not be as bad as they thought," says Kool. "Forty is a good age to do this, as people still have time to improve their position without it costing too much."
He says: "If you can successfully convince people they have options, they will listen to your message." The options could include looking at other money streams besides pensions, such as equity release from their home, or external insurance products.
For less knowledgeable groups of members, it is particularly important to devise fun ways of making investment decisions.
Clarke says, "With DC schemes, we can help members get an idea of their individual risk preference by questions such as: Do you book in advance when you go on holiday? Or do you get a last-minute flight and find accommodation when you get there?" She adds: "This is more helpful than the standard financial questionnaire, which members may not read because it's too dull."
As ever, the basic rule is to use plain language. If technical terminology cannot be avoided, there should be a jargon buster to explain specific terms.
And examples based on personal information can present the facts in various levels of detail to cater for different audiences.
Next comes the decision on how to convey the information.
"If you have a largely desk-based workforce, online solutions such as dedicated websites or html alerts with links to a microsite may be appropriate," says Clarke. "If the audience is mainly based out on the road, direct mail will ensure that no-one is excluded through lack of access."
The medium for communication may also be related to the company's line of business: a mobile phone company for instance might use texts, while an internet service provider could provide information online. These methods allow the recipient's response to be tracked.
Furthermore, setting up a pension fund website can help in contacting deferred members who have been lost.
"Design your home page so it is easy to find on the internet," says Clarke. "This includes using names and words which will easily be found by search engines. And make sure a contact number is clearly displayed. Deferred members might do a search and get in touch again, helping to reduce the number of people you don't know about."
But these avenues of communication can still be used alongside more conventional methods.
The Dutch pension fund PFZW recently told members their pensions would stop being indexed the following year via a successful series of workplace meetings.
"Meetings such as that have a ripple effect, with workers telling their friends and colleagues," says Kool. "In addition, the pension fund director writes a blog every week, telling members what is going on and encouraging them to give feedback. And they do."