Helping people make informed active choices will require a substantial amount of work from within and beyond the pensions industry, with greater consensus needed on key engagement goals, a report from the Pensions Policy Institute (PPI) has found.

While the PPI's report acknowledged that the pensions industry has started to take a more collaborative approach, with a number of ongoing pension awareness campaigns, it said it could benefit from further collaboration on the more technical aspects of engagement.

In particular, the report emphasised the need to reach a consensus on a method for measuring engagement, best practice for data collection and utilization, and agreeing clear language to be used across the industry.

It suggested that this collaboration could also extend outside the industry, as the PPI said that interventions from stakeholders outside the pensions industry, such as education providers and employers, could help to build financial capability.

In addition to this, the PPI found that technological advancements, including pensions dashboards and the potential for greater segmentation, present a particular opportunity for innovation, allowing for more personalised and potentially more effective engagement.

Timing was also a key consideration, as the PPI found that providing support at an appropriate time, along with clear steps to take and an understanding of the impact of taking them, could encourage more informed active choice.

On the flipside, however, it found that confusion about what specific steps to take in order to improve retirement outcomes can discourage active decision-making, arguing that helping people to understand the specific steps they can take and the impact of doing so could encourage more to make active choices.

However, the report clarified that engagement, or “the encouragement of active decision-making”, may not be the most effective way to deliver positive retirement outcomes, warning that the current pension system makes it difficult for people to achieve optimal retirement outcomes without making informed active choices.

Instead, the PPI said that other mechanisms may more effectively deliver the goal of positive retirement outcomes and will be particularly important for people who are unlikely to make informed active choices and for whom full engagement is unachievable.

In particular, it said that guidance, which may be delivered as part of engagement strategies, is essential to support those who are less capable of independently making active choices that will deliver positive retirement outcomes.

In addition to this, it suggested that appropriately designed defaults could help people who will not or cannot make informed active choices to achieve better retirement outcomes.

Rules of thumb could also provide one solution, by helping to reduce friction costs and guide people towards better retirement outcomes without the need for full engagement.

PPI senior policy researcher, Lauren Wilkinson, commented: “While increasing engagement is a key focus of both government and industry, a significant proportion of the population are unlikely to achieve positive retirement outcomes under the current system without changes to engagement strategies and consideration of other mechanisms.

“These mechanisms are needed to support those who are unlikely, unable or unwilling to engage, or unlikely to achieve positive outcomes through engagement alone.

"The approach that is appropriate, be it engagement-focused or other policy levers, differs according to individual levels of financial capability and openness to engagement.

“Developing a better understanding of the range of needs and the varying capacity for engagement across the population is vital to the goal of delivering positive retirement outcomes for as many people as possible.

“A designated taskforce or working group for engagement could be established to bring together key stakeholders from across government and industry in order to build consensus and develop solutions to the engagement challenge.”

The report was sponsored by Standard Life, while PPI's engagement series is sponsored by Aegon, Punter Southall, Royal London, Standard Life and the Universities Superannuation Scheme.

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