Some years ago, speaking to a pension service provider, I asked why they weren’t innovating in DC. His answer was commercial and cold but, I suppose, true: “because the money is in DB”.
This is fast changing. In part, as a result of this, a large chunk of the legislative and regulatory agenda over the last few years has been focused on the efficiency of DC.
The net result of this commercial, regulatory and legislative focus is that, for a given amount of contribution input, DC is getting better - a lot better. We are, in software terms, at DC 2.1.
But what might DC 3 look like?
This series of blogs has a think. The first talked about Robo-defaults (http://blog.ptluk.com/a-vision-of-dc-to-come-part-1-robo-defaults) this second one is about Smart Engagement.
DC 1 member engagement didn’t really exist. At best members were given a scheme booklet – often having already joined.
DC 1.1 wasn’t much better. Booklets were sometimes personalised and made more appealing with colour and image.
DC 2 was a vast improvement but a mixed bag: An improvement because members could access websites and see their own records, make changes and play with some toys including modellers. A few enlightened employers would spend vast sums of money on formal engagement programmes, getting MI to track the success of their spend. A mixed bag because (a) many schemes have stuck with DC 1 and 1.1 and (b) some of the DC 2 versions are very clunky (for example, websites that offer access only – no change ability and no toys).
DC 2.1 is starting to emerge – although, again, patchily. Naturally it builds on DC 2 and makes more use of gamification and other nudge tools to encourage certain behaviours (and just to be clear – gamification isn’t always about computer games. It, instead, seeks to exploit our natural competitive instinct to cause us to behave in certain ways. Have you noticed on LinkedIn that you can now see how you are ranked amongst (a) your contacts, (b) your colleagues and (c) “people like you”? Do you find it tempting to do a little more so that you can move up the league tables? If so, you’ve been gamified without having to shoot a single alien!)
So...what might DC 3 look like?
Our mission statement for DC is “To provide robust and proactive defaults and an environment where members can make informed decisions”.
To find out more about our mission statement click here
The second part of this statement sets the bar way above where it currently is. It is deliberately vague as we cannot anticipate the technologies or techniques for engagement that will become available (five years ago we hadn’t thought about nudge and gamification). DC 3 will be open minded to new ideas, new technologies and new language – adopting what ever works.
For a time I was an evangelist for education and to some extent I still am, but we have to realise our limits. We are never going to educate the mass of members on target date funds. Instead, DC 3 should look at tactical engagement. Where can we engage with the most impact in the most meaningful way with the most success?
To me, it seems that the two tactical sweet spots must be (a) the contribution decision and (b) the payment decision. The first because it will have a huge impact on outcome and includes a concept, affordability, which all members can understand. The second because it is can have a huge impact and because, at the point, every member has to engage to some extent.
Our engagement also needs to be relevant. We should not talk to all members as if they are Times readers. We don’t need to. We can segment members so that the tools we use are relevant to them. For example, and at the risk of stereotyping, games for younger members, Daily Mirror language for blue collar members and cost benefit analysis for exec members.
All of this will be complex – but only from the inside. The member need not understand the engine of the car, they need only understand (a) where they want to get to and (b) how much fuel they need to put in the tank. We can do the rest.
We are moving to Smart engagement, but it is painfully slow and this is odd. Smart engagement will lead to better member outcomes. This is good for the member but it is also good for their employer (it helps with workforce management), good for the State (less reliance on means tested age benefits), good for the social objective of pensions and good for providers (more money in the system for them to apply charges to).
It must be a part of DC 3.
For further information about our DC services visit http://ptluk.com/services/ptlife-time-dc-governance/