Three tips for improving employees’ pension literacy

Retirement income adequacy is a growing concern as more companies shift from defined benefit to defined contribution pension plans, average lifespans increase and coverage in the private sector declines. As a result, financial literacy has become a key area of focus for employers in recent years. 

And for good reason. A recent survey by the Canadian Imperial Bank of Commerce, which polled more than 1,500 Canadian adults, found 53 per cent of respondents aren’t sure if they’re saving enough for retirement. Another 37 per cent haven’t even thought about retirement or are unable to save for it.

Read: Canadians estimate $756K will provide a comfortable retirement

If financial literacy is a challenge, then pension literacy is an even greater one. How well do your members understand their pension plan, the benefits they’re likely to receive or how it coordinates with other retirement income sources, such as government programs and personal savings? Do they truly appreciate the investment employers are making?

Here are three tips for plan sponsors to help boost members’ pension literacy:

1. Use decision points as teaching moments.

The reality is, members often don’t pay much attention to their pension plan until they need it or it changes.  But there are a few key decision points for members along the plan lifecycle: enrolment, plan change and retirement, for example. So why not maximize communication around those decision points, when members are naturally more engaged? Even something as simple as guidance on how to fill out the pension election forms can make the experience for pre-retirees a little less daunting.

2. Don’t assume. Explain.

Pension plans can be complex, and it’s easy to get lost among the pension jargon. As well, a report by the Conference Board of Canada found 40 per cent of Canadian adults have literacy skills too low to be fully competent in most jobs in the modern economy.

Read: Just one-fifth of employers have formal strategy around employee financial wellness

As much as possible, pension communication should include clear, plain language. When covering more difficult concepts, use a glossary of terms to explain the language. Additionally, employee surveys or focus groups can be useful tools to fine out how well members understand the plan.

3. Make it a two-way street.

Since pension communication is often more focused on disclosing information than about connecting with and educating plan members, employers should make sure their communication strategy includes a way for plan members to ask questions and offer feedback. Then, incorporate those insights back into the strategy.

Communication is an iterative and interactive process. It’s not about creating a monologue; it’s about starting a conversation.

There’s no question that increasing pension literacy is an uphill battle. But if we want to build a better foundation for engaging plan members in the future, then we need to start today.