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Retirement Funds

Plan sponsors should use smart default funds to increase engagement, PLSA conference attendees told

Employers should supplement low-cost nudges with smart default funds to boost participant engagement, delegates heard Wednesday at the annual Pension and Lifetime Savings Association conference in Liverpool, England.

Delegates also heard that personalized digital communication strategies have helped other industries to improve customer engagement — a model that could be applied to the retirement industry.

Elisabeth Costa, director of consumers, economic growth and energy, at the Behavioural Insights Team, a social purpose company owned by the U.K. government, said: "Prompts are a low-cost and efficient way to boost engagement," but "because the baseline level of contributions is very low they are not going to turn the dial up. They need to be supplemented with smart defaults." Ms. Costa said participants would also increase contributions if they were asked.

Ms. Costa added that some plans offer the option of automatic escalation up to a preset contribution caps. "Contributions will escalate with pay rises right up to a preset cap," she said.

However, Ms. Costa recognized that changing the asset allocation too many times as a result of savers engaging with their plan often might not be adequate. "So you have to set up the default right," she said.

Blair Turnbull, managing director, U.K. and international digital and retail direct at Aviva, speaking on the same panel, said 47% of savers never open retirement-related mail.

Aviva studied the behavior of savers, finding that financial well-being has come to the forefront of plan sponsors' efforts to engage with their employees. "We have learned that the corporates wanted to be part of the well-being solutions" because they could counter work absenteeism and increase productivity by 20%, Mr. Turnbull said.

"Two-thirds of the consumers we studied wanted to self-manage their (retirement savings account) and two-thirds wanted for it to be online," Mr. Turnbull said.

Richard Butcher, PLSA chairman, during a keynote address earlier in the day, called on the industry to alter the ways in which it delivers retirement strategies, saying "we have to change the way we deliver products."

"We cannot afford for (the solutions of engagement) to be complicated. We need to start seeing participants' perspective," Mr. Butcher said.

Mr. Turnbull called on the industry to use tools that can help with two issues. "(The) pension profile (has to) follow the individual," he said referring to accounts that help employees access and track multiple retirement accounts. The engagement strategy should take into "account existing customers not just new customers."

"We are in the business of well-being not in the business of charts and data," Mr. Turnbull said.