Part one: avoiding annual statement panic and protecting pension pots from scammers

As a consequence of Covid-19’s impacts, many employees are feeling heightened anxiety and increased financial strain. This creates a real risk that employees will make ‘in the moment’ irrational pension decisions, that have a detrimental impact on their long-term financial wellness.  

This means that, even in this pandemic, pension communications should still have an integral place in internal communication strategies – as employers need to educate and engage employees who could be susceptible to poor financial decisions.

This is not a time to be silent, it’s a time to talk about pensions, connect pensions to overall financial capability, make the conversation two-way and keep this dialogue going.

There are five key pension communications tips for employers to consider – this week, I'm sharing the first two.

1. Reduce the shock factor of pension annual statements with pre-investment-education.

The impact of Covid-19 on the economy has had an inevitable hit on many pension investments. But for many of us our investment/economic knowledge is relatively basic, and it’s understandable if, on receiving a new pension annual statement, employees panic if they see a drop in their pension pot.

For example, some employees may panic because they don’t understand what is causing the drop in their pension pot – they may not appreciate that their pension pot is susceptible to market downturns. For other employees, who understand this, they may panic that their pension pot and investments will keep dropping and never recover.

For many employees, it’s likely that their pension pot will recover and grow again. And even those with retirement on the horizon have the potential for recovery by leaving their pension pot invested once they’re retired and drawing income directly from it (although this of course carries its own risks).

So what can employers do to reduce annual statement panic?

Prepare members for their annual pension statement and let them know in advance:

• How the investment market has been impacted by Covid-19

• How the default investment strategy has performed, and

• How this may impact what they see in their annual statement.

Be sure to take an educative approach – a one-liner in a newsletter or email may increase anxiety and anticipation for the statement, but an expert-led webinar with a Q&A will empower employees with understanding.

Lack of knowledge makes us feel powerless, helpless, not in control, worried. As an employer you can alleviate this with timely, relevant education on how the economy and reaction to the pandemic has impacted investments/pensions.

2. Protect employees’ pension savings by ensuring they ‘stay alert’ to pension scams too.

Many of us are very consumed by Covid-19’s implications and our ‘normal’ way of doing daily activities is constantly changing. It’s a time of uncertainty and unpredictability – and this gives scammers an opportunity to exploit our expectation of change.

Scams are up by 400% during this pandemic - a scary fact. And we also know that pensions are often a scamming target, with the average pension scam costing the victim £91,000.

Employers can help protect employees from falling victim to a pension scam by:

• Encouraging them to be vigilant and cautious, and ‘stay alert’ to pension scams too

• Sharing common scamming tactics – like unexpected contact, time pressure to act now, alluring ’too good to be true’ investment returns or early access to their pot

It’s also important to detail who they should contact if they fall victim to a scam.

A simple employer communication could make a substantial difference to your employees’ financial future – potentially a £91k difference! And even if you’ve educated your employees about pension scams in the past, times are very different now. Anxiety is heightened, our rational mindset is strained and we’re experiencing lots of change, which makes employees more vulnerable to scams and ‘knee-jerk’ decisions.  

Stay tuned for Part 2 next week, where I look at how you can support those for whom retirement is on the horizon and help employees who are facing cash-flow issues with rational decision-making.