Plan Design Blog

US Perspectives: How DC Plan Sponsors Can Engage Diverse Member Personas

04 March 2022

7 min read

Henry Smith, CFA| Investment Strategist—Multi-Asset Solutions

David Hutchins, FIA| Portfolio Manager—Multi-Asset Solutions

Millennials often say their biggest challenge is being lumped into one category, as if everyone’s needs and aspirations are identical. Arguably, DC pension plan members have a similar problem in terms of being bucketed too broadly. But just because members share the same retirement plan doesn’t mean their backgrounds—and investment savvy—are homogenous.

Every pension plan member is different. But despite their differences, members can still be grouped into three personas, according to our US research, Inside the Minds of Plan Members. In fact, based on responses to our questionnaire: “What Sort of Investor Are You?” three groups have consistently emerged: Capable, Eager and Conservative (Display, below). We believe that plan sponsors can boost engagement and confidence by addressing each persona in a more targeted manner and by doing so on its own distinctive terms.

While this research is based on US pension plan memberships, we believe that similar perspectives can apply in other major DC markets. In this article, we draw insights from our US team’s research to consider the different investor personas that may exist in UK pension plans and the approaches we can take for effective engagement. Ultimately, considering global thinking about engagement approaches could help us unlock greater member engagement across our industry.

Defining Three Distinct Investor Personas

The three groups—of roughly equal proportions based on years of US surveys—have specific characteristics beyond demographics. Each persona reflects an investment style, learning preference, engagement level, risk profile and other qualities:

Capable – Confident, knowledgeable investors who score highly on our financial literacy test and have higher plan account balances
Eager – Younger members with greater enthusiasm and confidence but lower literacy scores, and—probably because they skew younger—lower account balances
Conservative – Cautious, diligent savers with lower confidence and investing acumen, yet they may know (or need) more than they realise.

Stronger Engagement Requires Targeted Outreach

Broad-reaching plan communications are a good start, especially if the messaging is straightforward, uses storytelling visuals and always includes a call to action. But the path to better retirement planning engagement, and outcomes, also requires hands-on messaging.

To engage more deeply with plan members, connections need high-touch relevance, which is harder to achieve with a wider net. We believe that grouping members by these distinct investor personas can help plan sponsors discover better ways to connect with members—communicating and engaging with them on their own terms to foster better long-term results. The idea is to understand members first to provide more of what they find useful.

Generating retirement confidence and investment knowledge, for example, has been an ongoing challenge for sponsors. The pandemic exacerbated the problem in recent years, but the trend began well beforehand, and could explain why a growing number of members may one day regret not saving more.

Even Capable Members Need Help

Compared with other personas, Capable members are long-term investors, financial planning enthusiasts and confident decision makers (Display). These members can be quite self-reliant, but they can still use plan sponsor help.

In the context of the UK, Capables are the type of members that may be invested in the self-select investment options, or at least the members for whom the self-select options may be of most interest. As well as making available a well-governed, suitable array of self-select investment options covering the full spectrum of asset classes and approaches, it is also important to provide clear documentation and communication of these options to empower Capable members.

Trustees and plan sponsors should also provide appropriate communications about the potential benefits and risks of the self-select fund range, and about the investment strategies these members could assign themselves. For example, many Capables may be too aggressively postured in their investment mix and need timely reminders of the potential downside to taking too much risk. Thought-provoking content about the risks and rewards of different investment types or perspectives on trending topics, like market volatility challenges or the long-term effects of inflation, can be helpful too.

Encourage the Eager, But Reinforce Their Need to Plan

Eager members need more guidance than encouragement. They typically spend more than they save, have the most debt and don’t follow a financial plan compared with other personas (Display). Their confidence tracks moderately high, but more importantly, they demonstrate a sponge-like thirst for financial knowledge. The key is to harness their enthusiasm and competitive drive by showing them ways to “win” at retirement.

For this persona, investment communications should be focused on the ‘assisted’ options, like the default. The primary objective is to better educate these members and facilitate understanding of the approach and broad suitability of the available investment options. That includes explaining for instance how the default option is overseen/monitored, and how the risk/return objectives evolve in the approach to retirement. As the Eager persona ages and learns, and their accumulated account values increase, they may transition toward the Capable persona where self-select, do-it-yourself investment approaches may be of interest.

Since they skew younger, eager members probably see retirement as too far off to warrant action today. But they’re also highly malleable, and their tendency to wait can be turned into a positive by demonstrating the advantage of extra time when the right actions are taken today. For example, financial wellness programs focused on paying down debt or following a financial plan can be especially relevant.

Given their younger age and lower financial literacy, these members would also benefit from better understanding the big impact that differing levels of contributions—including both employee and employer contributions—and pension tax efficiencies can have when compounded over a long horizon through to retirement. Short, simple nudges or engagements could be effective in covering different areas of member choice and the effect this can have on their retirement outcomes.

Conservative Savers Need a Nudge into More Growth-Friendly Waters

Conservative personas see themselves as savers more than investors. They’re the most averse to market volatility and least likely to lock in a specific investment strategy (Display). If faced with an investment choice, they would typically stick to less risky, more defensive investments like money market funds to protect their plan savings. Based on our US research, they’re the least retirement confident of the three personas. Though they’re older than Eagers, they have the same average account balance, which is less than half the balance of Capables.

Their low retirement confidence may well stem from a sense that they haven’t saved enough. That’s why they need a nudge to remind them it isn’t “too late” and make them feel more comfortable in making savings decisions related to contributions, retirement date and investment choice.

When it comes to UK pension members, they will probably be invested in the default arrangement, which should be taking a suitable level of risk in seeking returns for investors. However, a small number of members may be considering or have already undertaken a switch, given their high aversion to market volatility. Across the pensions industry worldwide, some DC arrangements require an investment choice and in these cases some members may have selected very low growth-potential options. It’s critical to engage with these Conservative members on the dangers of excessively low risk taking for retirement outcomes and on the impact of inflation over time. This means using relatable examples and tutorials about effective allocation across investment types—especially to those that add growth potential over time, which is still very much on their side.

Member engagement in the UK is generally low and we believe there is a large proportion of members that will probably never engage—and it is for these members that the default mechanism is most effective. We do however believe that there is a striking correlation between strong member engagement and broad improvements in members’ retirement confidence. For a select proportion of UK members, this additional confidence may spur those with more unique needs to take action and has the potential to result in a meaningful improvement in retirement outcomes.

Reaching a wide swath of members through broad outreach efforts is an effective starting point. After all, some member goals are commonly shared, such as generating retirement income, managing market volatility and staying ahead of inflation. But members also have distinct differences—hopes, concerns, self-awareness, personal drive, etc.—that should be acknowledged too. For sponsors, understanding what makes their members tick and building a thoughtful communication strategy around that is the key to unlocking greater member engagement.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

Henry Smith, CFA

Henry Smith is a Vice President and Investment Strategist on AB’s Multi-Asset Solutions team. He is responsible for the product strategy and communication of AB’s UK defined contribution, custom multi-asset and sustainable multi-asset solutions. Smith joined the firm in 2019, following more than two years at Lane Clark & Peacock, where he provided investment, research and governance advice to a range of UK defined contribution pension schemes. Before that, he worked at Capita Employee Solutions, where he advised both UK defined contribution and defined benefit pension schemes. Smith holds a BSc in financial economics from the University of Essex and is a CFA charterholder. Location: London

David Hutchins, FIA

David Hutchins is a Senior Vice President and Head of AB's Multi-Asset Solutions business in EMEA. He is responsible for the development and management of multi-asset portfolios for a range of clients. Hutchins joined the firm in 2008 after spending two years at UBS Investment Bank, where he was responsible for devising and delivering innovative capital markets risk-management solutions for pension schemes. Prior to that, he spent 13 years at Mercer, where he served as a European principal and scheme actuary, providing trustee and corporate advice to a range of UK pension funds and their sponsors. Hutchins holds a BSc in mathematics and a PGCE from the University of Bristol. He has chaired the Investment Management Association's Defined Contribution Committee and formerly chaired the defined contribution industry working group for the UK government's "defined ambition" project. Hutchins is a Fellow of the Institute and Faculty of Actuaries. Location: London

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