Pension Insurance Corporation, the defined benefit insurer, is calling for an end to referring to defined contribution as ‘pensions’ and wants an honest conversation about what DC is, but it stops short of asking employers to take a share in people’s longevity and funding risk. 

 

A new report by PIC recommends dropping the word pension, saying this refers to regular income, and instead suggests expressions such as ‘retirement funds' or 'later life savings', based on the results of an internal pensions engagement campaign PIC ran with its 500 employees this summer. About half of its respondents described pensions as an income, particularly younger participants who rely on DC pensions. PIC argues that this misunderstanding drives negative views about pensions. 

 

“Britain is in the middle of a generational shift around retirement funding as we transfer responsibility and uncertainty to individuals. That’s a huge change, but it hasn’t been set out clearly to the public, and the way pensions and savings are described is an obstacle to better understanding of the reality of retirement funding today,” said the insurer’s chief executive, Tracy Blackwell. 

  

Blackwell said a “huge cultural shift” was now needed to match the changes in pensions, learning from the US and Australia.  

 

“Finding a new way to talk about defined contribution pensions, with employers taking a lead in financial education, would allow Britain to have a more honest and informed conversation about retirement funding,” she added, but stopped short of calling for employers to return to providing pensions that offer a regular income stream for life. 

  

Pensions minister Laura Trott welcomed the report, saying it adds to the understanding of how people interact with and feel about their pensions, and encouraging employers and others to read it. 

  

“Greater engagement with pensions and a more active, informed public debate about funding a better retirement are strongly in the public interest," Trott said. 

   

PIC's research found that even people who work in pensions feel unhappy and disappointed at DC pensions’ fundamental inability to provide them with certainty about their retirement. Many focus group participants said they felt powerless over their retirement outcomes because of DC pensions’ failure to provide a predictable income. 

  

The insurer argues, however, that it is possible “to shift the savings culture”, effectively locating the solution in engagement, without clarifying how this would alter the lack of predictability. 

Its report recommends that employers should offer financial education to staff, which would also allow companies to highlight pension contribution as a benefit and incentive. 

 

As an example, the insurer cites its own intervention including staff survey, webinars and a so-called Five Day Challenge - a set of simple daily tasks that result in an up-to-date list of pension pots, balances and access details for those who take part. 

 

Engagement campaigns can lead to “significant increases in the share of staff who update their records and start actively managing their pots”, PIC said.