For many pension funds, communication with members has been a case of going through the motions and complying with minimum legal requirements. But enter a monumental financial crisis and good communication suddenly becomes of crucial important.
“Employers are providing a financial service, but financial services aren’t in best odour at the moment,” says David Bird, principal, Towers Perrin. “So it is really important to establish a relationship with members.”
Alfred Kool, partner, Kool Baas & De Quelerij, specialists in pension communications, agrees: “Pension funds that are successful in building up a relationship with members are more successful in reaching them with messages about the current situation.”
When the crisis first broke, he says, individual pension funds remained too silent. “People got information from other sources - TV and newspapers - and it was all very negative.” Kool believes that the key to good communication is openness and honesty. “We face not a financial crisis but crisis of trust.”
“Informing members in a letter that answers all their questions is a good move,” he says. “There are some Dutch pension funds which do this, giving short, honest answers.”
For many Dutch funds, part of the communication process has been to outline the recovery plans which had to be submitted to the Dutch Central Bank (DNB) earlier this year.
PME, the industry-wide metalworkers fund, submitted its recovery plan on 30 March, the same day posting the press release, a summary of the plan and frequently asked questions on its website. Its website also shows the fund’s current coverage ratio, updated monthly.
PME will now be sending a letter to sponsoring employers, telling them about the recovery plan and how employees would be informed. Employers already receive a bimonthly e-newsletter, and the same information was published in this format as well.
Following this, scheme members and pensioners will receive a personal letter. This will be supplemented by regular updates on the fund’s financial position published in PME magazine, sent to all employers, employees and pensioners. PME will also hold question-and-answer sessions all over the country this autumn.
Many pension funds have now learned to tailor the method of communication to the audience they are trying to reach. Letters, e-mail and items on the fund’s own intranet can all be used, as well as workplace meetings. Some pension funds run specially-designed websites appealing to younger users.
However, it is important not to make too many assumptions about which sections of the workforce prefer which forms of communication, says Kool. “Everyone thinks e-mail is writing for younger people but young people think e-mail is for older people. In any event, communication will remain a difficult issue - pensions is not very sexy.”
A big priority is simply to get employees’ attention, as well as to give them some basic financial education. Pension consultants AWD Chase de Vere achieves this via the ‘lunch and learn’ series of presentations for employees, consisting of a 20-minute talk and a question-and-answer session from a pensions specialist.
Another factor in successful communication is timing.
“You want to avoid coinciding with announcements from the sponsoring company,” says Julian Webb, head of UK DC, Fidelity International, which offers an investment platform with over 100 funds from 25 managers to DC pension scheme clients.
“It’s not a good idea to send out information when there’s bad news about redundancies or pay freezes. So pension funds should talk to the employer to synchronise announcements.”
This year, Fidelity has produced special newsletters for pension fund clients to send out with annual reports, addressing current market conditions and stressing the benefits of pension fund membership. Fidelity hires writers who work for national newspapers and use language that is readable and informative without being too technical.
Fund websites, which allow members to check their own fund valuations daily, are also updated regularly with news items.
However, the thorniest issue is probably what to tell members, and most experts agree that the best strategy is to be open. But they advise different strategies for DB and DC plans.
“It is all about managing the expectations of staff,” says Anne Lawson, associate director, AWD Chase de Vere. “We find that many employers are reconsidering their commitment to DB schemes, and in this case, they should be telling employees where the business is, and what options are being considered.”
With DC schemes, of course, there is a known cost to the employer.
“Employees should be told how their funds are performing and what strategies they themselves should be using,” says Lawson.
For DC schemes, Webb says, the main issue is investment performance, and the vast majority of members should be advised to do nothing. “They should stay in for the long term because performance will return. It’s important that people don’t switch out and lock in their losses. They could also contribute more, and benefit from the low costs of the funds,” he says.
PKA, the grouping of eight pension funds covering the Danish social and health industry, tries to keep technical information to a minimum in communicating with its 230,000 members.
“That means they can understand it right away,” says Thomas Knudsen at PKA. “Too much information would make people even more confused. We are also very careful not to make promises we can’t keep in future. However, it is better to be open than to be accused of not giving the right information at the right time.”
“For PKA, the key factor in communication with members is the level of pensions, not the interest rate, which is a more interesting figure for market value-oriented schemes,” says Knudsen. “PKA pension funds all work within an average interest level environment, which means levelling out from one year to another.”
When the financial crisis first reached epic proportions last autumn, PKA immediately posted a message on its website, telling members their pensions were safe, even if the pension scheme were to suffer. PKA also made it clear that a rise in pensions was not likely for the next few years.
Over the next few months there were regular updates on the economic situation, reinforcing the previous message. There were similar articles in PKA’s quarterly magazine to members, and the group also invited a ‘brains trust’ of experts to give their views on likely future developments at its annual general meeting.
However, PKA has the help of 1,000 representatives elected by members who disseminate information in the workplace, relieving the group of the need to do large mailings every time there is something new to report.
Gail Moss assesses how the financial crisis is affecting the way pension funds talk to their participants