Pension funds indicate that they find their own ways of providing information to members more effective than the sources prescribed by law, such as the Pension 1-2-3 and the standard UPO overview. It is time for a good conversation at the kitchen table.
18 Feb 2020
By Rob Spil (Senior Business Consultant, CACEIS)
Pension communication is of course at the basis of a good relationship with the participant. Admittedly, it is significant that the participants only have the last word in the 'evaluation of the Pension Communication Act'. Nevertheless, the outcome is good news. Minister Koolmees has given pension funds more freedom to set up their own pension communications. That's important: a fund that wants to survive the consolidation battle must be able to carry out the communication that is essential to the nature of the fund according to its own ideas.
Communication specialists can learn from the developments in behavioral finance. They are the first to realise that people behave irrationally when making financial decisions. Pension funds also recognise this and try to (better) prepare their members as well as possible for their future pension situation. That's not easy at all, that shows in the same evaluation.
"About a third of the participants explicitly state that they do not know when they will be able to retire and how much they can expect.”
Maybe we should change track and listen to Meir Statman. He talks about second generation behavioral finance and doesn't see people as rational or irrational, but as normal. Loosely translated, we humans actually all want the same thing:
- financial security
- to take care of our children and family
- to remain true to our values
- social status
- to belong (inclusion) and we want respect
Of course, the exact wish list varies according to the personal situation such as age, education, political persuasion and culture. That is why it is so self-evident that behavioral finance focuses on the family and/or relatives as the first line of defense against investment errors of their clients.
Netspar regularly investigates how important the family is to the participant when it comes to pension decisions. For example, it turns out that Dutch participants like to leave money to their loved ones with a warm hand. This is not only important for the member himself, because he or she has to save (pension) money to do so. But of course, also for those who stay behind, because the younger generation can more or less rely on legacies for their retirement provision. Participants realise this value of the warm hand. Or as Statman himself says: "...when parents give to children, all smile. When children give to parents, all cry".
Here's another strong example of the role of the kitchen table for personal retirement planning. Did you know, for example, that participants with a so-called 'pulling' partner (i.e. a partner who wants the participant to retire early) actually retire early. Earlier than participants with a partner who would prefer the participant to continue working longer?
In that case, how a pension fund should involve the member's family in pension communication does not seem that simple to me at all. Perhaps pension funds can build on a recent ABP/APG experiment. They understand that participants get emotional stress when making pension choices. In short, which second generation pension fund puts its immediate family under the MRI scanner in addition to the participant, in order to investigate which communication leads to positive feelings in the family?