Rory Murphy says pension funds must do more to embrace and reflect the diversity among their membership.
The Financial Conduct Authority’s (FCA’s) discussion paper on intergenerational differences aims not only to pinpoint differences between age groups, but also to identify which of them need to be addressed, and which actions should be taken.
Of the Ensign master trust’s 4,600 members, 21 are under 20 years of age, while more than a hundred are over 65. Fairly obviously, those two groups will have widely differing perspectives, plans and priorities. As will the various age groups in between.
Younger members are likely to be more pre-occupied with paying off student loans and saving for house purchase, while older cohorts will be more concerned with the adequacy of retirement income and potential health and social care costs.
The differences in the longer established Merchant Navy Officers Pension Fund are even greater. Our oldest beneficiary is 103, and the youngest only five. And for many defined benefit schemes, this kind of range would not be untypical.
One initiative that I have been working on with colleagues from other City institutions, is aimed specifically at the younger end of this spectrum. Through a series of short animated films, we are seeking to introduce children from pre-school age onwards to very basic financial concepts, such as the benefits of saving rather than spending their pocket money.
If tomorrow’s consumers have a better understanding of the financial landscape as they emerge from the educational journey, our hope is that they will be better informed and less likely to make poor financial decisions in later life.
But this is a long term project. As an industry, we clearly need to be taking more immediate measures to reflect the differing needs and aspirations of our members or consumers.
For pension funds, there’s clearly not much point sending out one-size-fits-all letters or emails to all scheme beneficiaries, but plenty of evidence that communications tailored towards more defined groups, or even individuals, can achieve higher levels of engagement.
But the pensions industry has often been slow to adapt its member communications to reflect these differing interests and priorities.
Are we slow to keep up with members’ lifetime milestones? Are we listening to the younger generation? Can we encourage younger members, post auto-enrolment, to hike contributions to more productive levels? Are we offering appropriate support on decumulation options to members approaching retirement age?
In this sense, I think the pensions industry can learn from other sectors. Banks and retailers, for example, seem much more able to engage with their consumers on an individual basis, addressing issues relevant to the consumer, and using the language they understand and the media they use – increasingly, social and digital.
Age is clearly a key factor in influencing both the content of our member communications, and the media through which it is delivered, and I look forward to seeing the outcome of the FCA’s initiative.
At the same time, it’s also worth bearing in mind that age, though important, is just one of many differentiators between members.
After all, when it comes to financial concerns and priorities, a 30-year-old seafarer may well have more in common with a 60-year-old seafarer than with a 30-year-old investment banker.
I have no doubt that pension schemes, including our own, should be much more tailored in their communications with members, and that age is an important factor. But it’s not the only one. Gender, income, career progression, family circumstances and others are also important.
I would also argue that pension funds should embrace diversity, but not division. An 80-year-old Ensign member may be a world away in outlook and perspective from a teenage member. But they do have at least two things in common. They both work, or have worked, in the maritime industry. And they are both members of the same pension scheme.
You don’t have to look far to be reminded that we live in an increasingly diverse and often divided world, in which common or unifying entities are fewer (and therefore arguably more valuable). Pension funds could have an important role to play as an agent of common purpose between otherwise diverse groups.
So, while engaging with members in a way that more closely reflects their requirements – age-related or otherwise – we mustn’t lose sight of the fact that as members of the same pension scheme, we also have common interests. Pension funds must embrace and reflect diversity among their membership, but my hope is that we might also, in a time of growing division, be a vehicle for promoting social and economic cohesion.
As published in Professional Pensions – click here