Legally opted-in, emotionally opted out
Like the start of an arranged marriage, pensions auto-enrolment has legally signed-up members but not captured their hearts and minds. To do this, pension customer experience needs behavioural design.
The surest measure of this lack of love is the rate of employee pension contributions; the median in small firms is just 1-2% of earnings. Thin contributions lead to pension poverty for members and slow profits for providers.
Many people in the pensions industry think that raising contribution rates is a Quixotic goal. There is little point, they would argue, in tilting at the windmills of savings affordability and pension disengagement. The evidence:
- 59% of non-pension savers feel they can’t afford to save.
- 56% of UK adults don’t have a household budget (so can’t decide rationally).
- An average scheme member sees over 100,000 commercial messages per year and probably less than 15 pension contribution messages.
- 33% of active DC scheme members have never checked that their pension contributions are correct.
Workers may be legally opted-in to occupational pension schemes, but they are emotionally and intellectually opted-out. The solution is to understand the behavioural issues at play and then to innovate the pension customer experience around those behaviours.
The pension customer experience challenge
The fundamental pension customer experience challenge is to persuade financially-squeezed, non-budgeters who are addicted to consumption to save more into a pension that they almost never look at.
This kind of challenge is a little like trying to help someone to lose weight. Showing Body Mass Index data and correlating it with health outcomes doesn’t help them change. Success comes with a permanent change in lifestyle habits: In the case of pensions, the new habits may be:
- Saving money rather than spending it.
- Planning for the financial future.
- Reviewing their retirement position.
- Doing a household budget.
A lot of Fintech and pension customer experience initiatives are built with flawed assumptions. This leads to mistakes like:
- Presenting information and assuming that members will change their behaviours.
- Describing a big goal and then asking members to work towards it.
- Assuming members’ behaviour is the result of conscious choice.
- Relying on short-term motivation to change long-term behaviours.
Behavioural research shows that all of these strategies are ineffective at changing behaviour.
Behavioural principles for pension customer experience design
The golden rules for behavioural design for sustained lifestyle change are:
- Keeping the required behaviour very simple.
- Building new habits on old ones.
- Finding a trigger point for motivation.
Keeping it simple
Simplifying a task means reducing it to an actionable sequence of the most essential steps. Here are some examples:
Simplifying a task
|Complex Task||Simple Task|
|Eat a nutritionally balanced diet that provides sufficient vitamins, minerals and other micro-nutrients and the right balance of fats, carbohydrates and proteins for any given level of activity.||Eat five a day|
|Exercise caution when approaching a road by carefully observing on-coming traffic in all lanes and only crossing when there is sufficient distance between yourself and traffic at any given speed.||Look left, look right, look left again.|
|How much physical activity you need to do each week depends on your age. Adults aged 19-64 should have at least 150 minutes of moderate aerobic activity per week, or 75 minutes of vigorous aerobic activity or a mixture of moderate and vigorous aerobic activity.||10,000 steps a day.|
How to simplify the pension contributions journey (and other elements of the pension customer experience) will be a future blog post.
Building new habits on old ones
New Year’s resolutions famously don’t work. Resolutions fail because they don’t change the small habits that are the building blocks behaviour.
Building new habits onto old ones to create a ‘habit chain’ does work. For example:
|General Resolution||Habit Chain|
|I will be tidier||When I get home, I will spend 10 minutes tidying the house.|
|I will eat more healthily.||At lunch, I will only eat fish and vegetables.|
|I will save more.||When I buy a coffee, I match it with savings.|
|I will be more active.||When I go to work, I will walk to the station.|
Pensions and retirement experiences need to be designed to build habit chains that link new behaviours to existing ones. A future blog post will address the specifics of how.
Habit chains and simplified tasks don’t change behaviours unless they’re brought together with motivation. Social research shows that the strongest core motivators are:
- Dreaming big
- Social acceptance or rejection
- Pleasure or pain.
In pensions, motivation is heavily interdependent with other savings options, trust, parabolic discounting (people prefer to take pain tomorrow, but are irrational in how they ‘discount’ that pain), social norms and even design aesthetics.
How to plot a motivation strategy through this complex picture is the subject of a future blog.
Pension customer experience design is not business as usual
Building habit-forming retirement propositions is not business-as-usual in most of the Life & Pensions industry.
To help members change their habits, pensions companies probably need to change their habits. As a starting point, pension customer experience and proposition projects need:
- Leadership that believes in re-engaging members with their retirement plans.
- A product vision that counts engagement (possibly measured by contribution rates) as its key success factor.
- Product and CX design tools that address motivation and existing habits (a separate blog will describe these).
- Regulatory compliance that is determined to simplify pension customer experience.
- Agile design and development that focuses on customer needs.
There is a competing (or possibly complementary) vision to all of this. That vision sees pension saving as a near-utility where scale drives success and regulation drives adoption. I’m an optimist. I think the industry can do better than this. Aviva’s commitment to digital and Allianz’s Digital Labs are evidence.
Time will tell whether the arranged marriage between auto-enrolled members and their pensions blossoms into love.