The Week of money (27-31 March)

A good story about pensions... yes, really!

‘My pension? Hmm... I’ll look at it by that time.’ ‘Let’s worry about that when we get there.’ Particularly people who have a while to go until retirement, tend to stick their heads in the sand when it comes to their financial future. Somewhere in their mind they might have a voice telling them that this is not wise, but that voice is skilfully silenced. Lisa Brüggen, researcher at Maastricht University School of Business and Economics, is looking for ways to strengthen that voice. Her research question is: How can you make Dutch people aware of their pension situation and encourage them to secure their future income?

Taking care of something today when you will only see the benefit in about thirty years—that appeals to few people. Nearly 60 per cent of pension participants have no idea what amount they will have to spend after retirement. Research shows that more than 80 per cent of people have an unrealistically high expectation of what their income will be during that time (see box). Why do people fail to learn about their pension? Lisa Brüggen: “Research by colleagues in the behavioural sciences shows that people find it difficult to vividly imagine their future. People often have little financial knowledge and find pension a complicated subject. Furthermore, many people lack self-discipline and frequently make irrational choices.” Most people who are currently retired are relatively well-off. “This reinforces the idea among young people that they will be well-off when they’re retired. But due to increasing uncertainty in the financial markets and the aging of the population, the risk is increasingly your own responsibility. That is why it is so important that they investigate it, to ensure that they don’t have too little money to make ends meet after they retire.”

The best way
Through a variety of different scientific studies, Brüggen is trying to unravel what is the best way for pension funds to communicate about this subject with the participants. The idea that a single message, delivered in the same manner, works for everyone is long outdated, of course. Brüggen distinguishes three groups: the ‘overly confident’, to whom you should address planning and self-efficacy to reach them, the ‘emotional’, to whom the benefits of taking action and retirement anxiety are important issues, and the ‘alpha male’, who especially wants to have confidence in a fund and wants to be a serious partner in discussions. They also found that women generally experience more difficulties and look at their retirement more carefully. People aged 37-46 are most afraid to retire, but are also the most negative and least active about retirement planning. “That's probably because they're in a stage of life where they’re still busy with child rearing, among other things, and they use that as an excuse for themselves so they don’t have to take action.”

Images and text
Another study also found that the title you give a newsletter has influence. ‘Making your pension secure is even more important in 2015’ was almost twice as often read as ‘Investing in your future is even more important in 2015’. Another study showed participants an image in addition to text in order to explain, for example, the phenomenon of ‘indexing’. “All participants in the study found that very nice. Strangely enough, that’s not often done in pension communication. The pension sector is interested in our research and would like to learn how it could improve, but the culture is still conservative. Communications are written primarily by lawyers, after which a copywriter might still try to make something of it. Before the crisis started and when the Dutch pension system was exceptional, there wasn’t as much need to explain a lot to the participants.”

Communications agency
Anyone who thinks that communications agencies can just solve this problem for the pension sector is wrong, according to Brüggen. “Communications agencies aren’t flabbergasted by our findings, but pensions are a special case. As communication professional Kornelis Wetsema says in his book with the same title: “Anyone can sell beer—but to sell a story about pensions, that's another matter.” Here at the university, we’re trying to bring the world of communication professionals together with the pension sector. My next study will be on the role of the emotions of each target group, for example, but also on how to use the influence of people from the immediate environment to activate people. Social norms are a classic and powerful driving force behind the decisions of individuals, but they haven’t been well-studied in the context of pensions.”

By: Femke Kools

The numbers

  • 59% of pension participants do not know what their plan looks like
  • 82% have unrealistically high expectations of their retirement income
  • 48% do not read their annual pension statement, and of those who do read it, 41% somewhat understand what it says, and 10% do not understand it at all

(Source: GfK Pension Monitor, 01/2014)​

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