Savers prepared to look past charges for returns

The study also identified low levels of engagement with pensions and member confusion around the difference between defined benefit and defined contribution.

Co-ordinated by law firm Sackers and carried out by NMG Consulting, the study only addresses the preferences of savers with the 11 contract-based providers that collaborated on the report.

But experts insisted member concerns remain constant across the occupational pensions universe, primarily because many savers may not be aware of the differences between trust-based and contract-based wrappers.

“There’s a lot that trustees of occupational schemes can look across to,” said Jacqui Reid, associate director at Sackers, adding that they “have a similar issue trying to achieve member engagement that IGCs and providers do”.

Deliver the outcomes

Trustees will also share an interest over the returns they are able to deliver to their members, as this featured as the most prominent saver concern throughout both qualitative and quantitative stages of the research.

The research used consultations with members across a broad range of ages and pot sizes to extract 23 important values and ranked them in order of importance by surveying more than 15,000 participants.

Jane Craig, partner at NMG, said that while members consistently expressed “a good outcome in retirement” as being most important to them, they were able to distinguish that from pure investment returns.

“They understand [their outcome] is underlined by the total amount of contributions and also importantly the quality of pension provision,” she said.

Importantly, the survey results demonstrated that members do not view costs as the overriding factor in determining a positive outcome. Charges were ranked outside the top 10 of member concerns, suggesting they may be happy to pay for quality services.

For Craig, that nonetheless reinforced a need for schemes to be vigilant on costs, as “members generally fail to connect the impact of charges on their return”.

Experts agreed, arguing that IGCs should be responsible for keeping costs as low as possible while ensuring that no quality is sacrificed.

“What [members] really, really care about is what they get back in the end,” said Alan Ritchie, head of employer and trustee propositions at Standard Life.

The report did not include analysis of how members react to the idea of volatility of returns, which would help providers set appropriate risk levels in portfolios.

Knowledge gaps

The report also found a concerning number of gaps in member knowledge of their pension arrangements. Only 40 per cent of members thought that they were in a default arrangement, while experts confirmed that the real proportion is usually about 90 per cent.

It also showed that members frequently associate negative headlines surrounding DB pensions with their DC pots, perhaps because they do not fully understand the difference.

Nonetheless, savers do appear to realise the importance of their pension, leading some to recommend renewed efforts at member engagement.

“There’s a great deal of willingness to engage with pensions if some of the barriers can be peeled away,” said Reid.

Much of the behavioural economics behind initiatives like auto-enrolment has suggested inertia is more important than member engagement.

But industry experts identified gaps in public knowledge that could threaten trust in the pensions system. Indeed “controls and safeguards” and “reputable, financially strong pension provider” were both highly rated attributes in the research.

For Robert Talbut, who sits on the Aviva IGC, member education around the risk borne by DC savers would be particularly important: “Yes there’s an investment risk, but that’s quite different from whether they’re going to lose their asset.”

Efforts at member communication should be targeted at specific important areas, argued Ritchie, given the barrage of other communications levelled at consumers every day.

“We have to focus on what I call the moments of truth,” he said, pointing to contribution levels and retirement options as more important than the benefits of joining a scheme.