Matching contributions are becoming a “growing phenomenon” within Irish defined contribution (DC) pension schemes, according to Aon Ireland CEO, Rachael Ingle.

Her comments were made at the DC Pensions Survey 2020 Highlights webinar today, 1 October, in which its Aon Ireland Defined Contribution Pension Survey 2020 was discussed. Aon found that matching contributions are increasingly the design of choice for DC schemes – 49 per cent of schemes now use matching contributions.

Matching contributions are when the employer will offer to match an employee’s pension contribution up to a certain per cent as encouragement for the employee to pay more into their pension.

However, Ingle raised the issue of getting members to take up the offer of matching contributions when they are offered by schemes. Speaking on the panel, AIB head of reward, pensions and employee relations, Keith Gore, said this is a “huge communications challenge”.

“I think if you’re in that situation, it has to be a really high priority because all the other things need to happen, all the operational and governance things, they’re as given, but you’re next priority really needs to be to try and get those contributions up,” he stated.

At AIB, Gore said his team has spent time looking into the profile of its membership. Older employees are very good at contributing and get the benefit of matching. However, this “dilutes down” as you get to the middle and younger age groups.

“A very simple thing is we’ve asked those age groups ‘what is the best way to communicate to you’ and the younger group always provide the most interesting answers. They said, for example, ‘if you’re looking for money from us, always ask us on pay day because we feel richer on pay day’.”

Another panel speaker, Aon head of DC product EMEA, Tony Pugh, raised the concept of auto-escalation as a way to increase member contributions. He said auto-escalation has worked very well in the USA, whereby people forfeit a part of their future pay rise.

“It is using member behaviour and people don’t like making negative decisions when it comes to financials so it’s worked really well,” Pugh stated.

The idea of forfeiting future pay to boost pension contributions has been trialled by AIB, Gore said. He explained that they contacted employees just prior to the first payday of a new pay increase and told them “you’re going to get this percentage of an increase, you could double that by contributing to your pension scheme”.

“We found that people are far more likely to spend money that they haven’t received yet, than spend money that actually drops their current net pay. It’s a much easier sell to say, ‘keep your net pay as it is at the moment and survive on that for another year’, than asking them to drop their net pay, despite all the advantages of tax and matching contributions,” Gore said.

“We only send that to the people who aren’t maximising the matching, and we group those, so we send a bunch of different emails and we say ‘more than half the people in your group are doing this and you’re not’, making them slightly uncomfortable that they’re not in the majority and people don’t like not being in the majority, and they feel then that they are losing out. There’s a lot of this behavioural economics nudge thoughts going on in the way we’re doing it.”

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