Magazine article Marketing

News Analysis: Pension Crisis Is Issue of Trust

Magazine article Marketing

News Analysis: Pension Crisis Is Issue of Trust

Article excerpt

With half the UK failing to plan for retirement, do pension providers need a change of approach?

Forget cruises, British 20-somethings will be lucky to afford the odd trip to Brighton in their twilight years if current projections are to be believed.

The Pension Commission's first report, written by its chairman Adair Turner and published last week, found that almost half the working population are not contributing a sufficient amount to their pensions to maintain a reasonable standard of living in retirement. The reasons why the UK is now facing a massive deficit in its collective pension provision, include the effect of an ageing population and a reduction in firms offering employees pensions guaranteed at final salary levels. But the most urgent problem is the shortfall in contributions.

Against a background of falling global stock markets, the fiasco surrounding reduced pension values at Equitable Life was the final straw for many consumers wondering whether or not to trust pension companies with their investments.

NOP World's Financial Research Survey 2004 found that, of consumers who do not currently contribute to a company pension, only 4% have started or plan to start a personal pension. Twice that number intends to buy property instead. It is hardly surprising that, between 2002 and 2003, sales of new individual pensions dropped by 14% from pounds 3.25bn to pounds 2.8 bn.

Clearly there are significant macro factors influencing the pensions market, but have individual pension providers failed to invest in promoting the benefits of pensions? According to Nielsen Media Research, adspend by providers plummeted from pounds 15m in 2002 to pounds 5m in 2003 as they sought to cut costs to protect dwindling profits.

Stakeholder side effects

Ironically, it is the low-cost stakeholder pension, introduced by the government in 2001 to persuade more people on lower incomes to invest, that has led pension companies to slash marketing costs. With charges capped at 1.5%, stakeholder pensions are loss-making for the providers over the first 18-20 years of their existence.

They have not even helped to bring in new accounts - most stakeholder pension-holders are consumers who have traded down from personal pension plans with higher charges.

Pension companies have responded to the shrinking pensions market by concentrating on squeezing profits from management of the funds they already hold, rather than investing in the search for new clients.

'The government can't restrict pension companies' ability to make profits (by capping charges) and then expect them to educate the mass market about the need for pensions,' says Paul Gordon, joint managing director of specialist financial services ad agency cchm:ping.

Companies are focusing on broad brand messages, rather than promoting pensions specifically. Firms such as market leader Standard Life, Scottish Widows and Norwich Union are running TV campaigns designed to promote a broad range of savings and investments. Standard Life and Scottish Widows both booked spots during the ad break of ITV's main evening news on 12 October, which featured coverage of the Turner report. …

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