How should pension schemes respond to the cost of living crisis?

Shaily Sodha / March 2023

How should pension schemes respond to the cost of living crisis?

01 March 2023

The cost of living crisis continues to dominate the winter's headlines – and of course it’s not just about headlines. It’s a real concern for many up and down the country, struggling to make ends meet and looking to cut costs wherever possible.

So how should pension schemes respond? What’s the responsible thing for trustees and scheme managers to do?

We know that lots of people are facing a significant pension shortfall – and some of them may not even be aware of it. For many, paying more into their pension is the best way to improve their chances of enjoying the retirement they want. But pension saving isn’t often a top priority for people in the good times, let alone when things are hard. The temptation for many will be to view retirement saving as an optional budget item; something that can be shelved for now and returned to at a later date.

If schemes are taking seriously their responsibility to protect members’ interests, good communication is necessary to help steer people through these choppy waters. When putting information together, you should bear some of these principles in mind:

Be sensitive. Yes, emphasise the importance of contributing to a pension scheme – but do so with an appreciation of the other financial pressures people are under currently. If your scheme has a website, you might want to look at the content around contributions or AVCs to make sure the tone is right. This is no time for people to misconstrue the pension scheme as a faceless corporate entity that is unaware of their daily struggles. Showing you care about your members might help them care about their pensions – and will make them more inclined to save in future, even if they are struggling to do so now.

Be sensible. Whether it’s in your BAU communications or a more focused campaign, now is a good time to encourage people not to panic and to remind them why pension saving matters. Members may be concerned about the cost of saving – but the cost of not saving could be even greater in the long run. With prices rising, it’s a good time to encourage DC savers to take a look at their investments with a view to trying to keep pace with inflation and avoiding asset classes that are currently struggling. You might also want to do something to explain the principle of compounding: pension contributions made earlier in your career are likely to yield more than those made later, because there’s more time for investment growth. It’s another reason to think twice before downsizing your contributions.

Be practical. With those things in mind, members will need clear and practical steps so that they know where to go to get help and/or take action. Signposting to the likes of MoneyHelper and Citizens Advice is a simple step that encourages people to take control of their finances, get help where appropriate, and not leave their pension out of the picture. It’s also another opportunity to encourage digital take-up – partly because many schemes have online portals where members can check and change investments if they like, but also because it’s a responsible action on your part as scheme managers: communicating digitally is cheaper, faster and better for the environment.

We’re going through turbulent times when public anxiety around finances is high – which is why it’s important to keep in touch with your members. Good communication can help people to remain calm, seek sound advice, and make sensible decisions that will benefit them in the long term.

Shaily is a Lead Consultant in the Sparks team with a focus on communication strategies for DC schemes.