Pensions – an industry ripe for a digital revolution
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The state of member communications and engagement in 2021
Introduction
The data quality game
What are the technology solutions for the industry?
The challenges ahead and Summary
The dawn of innovation – how technology can help members
Past
Present
Future
Changing rules for 2021
In the digital age, seamless, transparent, and convenient access to your finances is key. Yet the pensions sector is decades behind in terms of technology In Chapter 1 ‘Past’ and Chapter 2 ‘Present’, Professional Pensions and Smart challenge the industry on why. And as regulatory pressure mounts, we now look to the future in our third and fourth chapters, to explore how technology will revolutionise pensions.
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In chapter one ‘Past’ and chapter two ‘Present’, Professional Pensions and Smart challenge the industry on why. And as regulatory pressure mounts, we now look to the future in our third and fourth chapters, to explore how technology will revolutionise pensions.
In the digital age, seamless, transparent, and convenient access to your finances is key. Yet the pensions sector is decades behind in terms of technology
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There are several reasons for this. For some, pensions seem boring. Retirement for many is too far in the future to think about, and few people outside of the financial services sector truly understand their pension savings. However, this lack of engagement risks creating a ‘time bomb’ for pension trustees, with members only realising that they don’t have sufficient savings for their retirement when it’s too late to do anything about it. This is why engagement with members is vital to encouraging them to go beyond the default and save more than the minimum legal contributions.
The pension industry has a problem. Under auto enrolment (AE), more workers than ever before are enrolled in a workplace pension – but many of them are not saving enough to achieve a good retirement outcome. However, widespread low engagement – through sheer inertia – also means members often either do nothing at all when it comes to retirement planning or engage at a minimum level.
How can this be achieved?
Professional Pensions surveyed 106 UK defined contribution (DC) pension scheme trustees and industry professionals on engagement issues and the use of technology. The findings, set out in this report, indicate that appropriate technologies could help improve the user experience for pension savers and make access to pension and investment information and documentation much easier. This would in turn increase member engagement and, hopefully, result in more favourable outcomes for members. For some, this should not come as a surprise. Consumer-friendly technology has helped other financial sectors – most notably banking. App-based ‘challenger’ banks such as Starling, Revolut and Monzo have gathered a significant number of customers in a relatively short amount of time through quick and easy sign up processes and simple interfaces with good functionality. The pensions industry lacks similar disruptive technology. PensionBee and Smart Pension are two exceptions, but broadly speaking DC schemes and providers do not have the ability to analyse data and measure member behaviours – two crucial elements in improving engagement and outcomes. Our research suggests the industry is still failing to take digital evolution on board. Only just over a third (36%) of respondents say they offer members an online service available through a smartphone app, for example. In addition, the majority (69%) say they only communicate with members twice a year at the most, outside of legally required messaging.
This must change.
From initiatives such as pension freedoms and simplified statements to the government-led pensions dashboard project brought in through the Pensions Act 2021, the regulatory landscape for defined contribution schemes has changed dramatically in the past few years. A new focus on systems and controls is putting pressure on the rationale for change – and therefore this evolution is something the industry can no longer afford to ignore.
Source: Smart
of respondents say they offer members an online service available through a smartphone app
36
%
The state of member communications and engagement
Auto enrolment has brought more people into pensions schemes than ever before and created strong default funds to help guide them towards an adequate retirement
Therefore, engagement with members is important and it is crucial that people take ownership, particularly as it becomes increasingly obvious that minimum statutory contribution levels are not high enough to generate good retirement outcomes.
Currently the most talked-about in the industry in terms of new thinking is the Pensions Dashboard. There is huge support in both the industry and government for the creation of a centralised platform on which individuals can access an overview of all their pension savings. Development is at an early stage, and there are many technological barriers to overcome, but the direction of travel is clear. The dashboard reflects the changing nature of member expectations. The ease of switching providers – whether it be banks, insurers or utilities – has been a focus of regulators for several years and on the whole it has improved vastly. For pension funds, however, the ease of access and ability to switch remains poor in many cases. The introduction of pension freedoms in 2016 highlighted the shortcomings of legacy platforms. Many were unable to facilitate drawdown, and several had problems allowing savers to withdraw all their pot at once – a crucial aspect of the new rules. The Pensions Regulator is also a major factor in this debate. It has recently made several announcements aimed at encouraging consolidation among smaller schemes to ensure members have access to good value for money. This could pose a serious challenge to older, inflexible platforms, says Shri Krishnansen, Strategy Director at Smart. “What might force those platforms to re-evaluate is when they start receiving these consolidation requests, and the assets start leaving,” he says. “Then it won’t be viable to operate those platforms any longer.” Whether it is a more proactive regulator, the development of a pensions dashboard, or the changing expectations of members, new technologies can offer solutions to the biggest problems facing providers today.
The Pensions Dashboard
The pension industry has been much slower than other sectors to invest in technology and modernisation for the benefit of its customers – and this is reflected in comments from the respondents. While three in every four schemes provide an online member service for their savers, only half are optimised using an app or similar.
Darren Philp, Director of Policy and Market Engagement at Smart
30%
36%
68%
just 30% of employers sent notifications through an online platform
only 36% sent communications by email
68% sent information to savers just once a year
Just 23% send communications twice a year, with 21% doing it quarterly. This is despite research from Broadridge indicating that communication was becoming one of the most – if not the most – important aspects of a DC provider’s service. (1) In addition, The Pensions Regulator (TPR) and the Financial Conduct Authority, which jointly oversee the DC sector, explained in a recent discussion paper that “good member communications provided at the right time and in an accessible format are vital if savers are to engage and make decisions that lead to good outcomes in retirement”. (1)
There is an effort to [modernise systems], and there’s been a big shift towards platforms as opposed to back-office systems. Many pension companies have begun to offer members access beyond an annual statement and through online access too. But it is slow progress and there’s a long way to go.
“If used in the right way, technology could play a key role in improving communications and the level of member engagement,” notes Rafferty. “There is a big focus to improve customer engagement and digitise – but it is a mammoth job.”
“It’s not just legacy software – it is legacy thinking that means firms are not making enhancements”
“Without transforming your ways of thinking, digital transformation is very difficult”
However, these defaults will never optimise outcomes for every individual.
While auto enrolment defaults mean we can use behavioural science to make sure most people are doing the right thing most of the time, one of the side-effects is that people quite often have inertia. They think they’re saving for a pension, so they don’t have to worry or do anything else.
Anthony Rafferty, CEO of Origo Services
Our research shows the level of engagement among DC members is still very low, despite a lot of talk and attempts for improvement – 71% of respondents describe their scheme’s member engagement as “average”, “poor”, or “very poor”. Similarly, financial education is deemed to be “average”, “poor”, or “very poor” by three quarters of those polled.
What is the level of engagement like generally among DC members with their pensions?
What is the level of financial education like among DC members when it comes to their pensions?
Excellent
2.8%
Good
26.4%
Average
48.1%
Poor
20.81%
Very Poor
1.9%
22.6%
46.2%
24.5%
4.7%
Does your scheme currently provide any of the following for members?
Is this online member service mobile optimised using an app or similar?
Nearly half of schemes send out only one communication a year to their members.
Source: (1) ‘Driving value for money in defined contribution pensions’, joint discussion paper from the Pensions Regulator and the Financial Conduct Authority, 16 September 2021.
Other than statutory communications how often does your provider send out communications to members?
In the first instance, using technology to tailor communications could be crucial to increasing engagement levels among members. Yet even here, the industry clearly has a long way to go. Data inequality, outdated systems and basic concerns around regulation and GDPR often hold schemes back, our research shows. Just over half of trustees (56%) are ‘somewhat able’ to tailor communications to different groups, yet a large majority send the same communications to all members. Just 4% say they have good enough member data to tailor communications and adopt a sophisticated strategy to target individuals based on their personal circumstances – an essential feat that needs to be achieved to encourage that all-important member engagement. Promisingly, just over half of trustees (54%) are actively trying to adapt their communication strategy to serve member needs.
Anthony Rafferty, CEO of Origo Services, notes that many pension providers’ IT systems are too old, making it difficult to modernise them and make information much more accessible immediately.
Are you currently adapting your communications strategy to make sure that it’s relevant to the needs of members?
Online member service
73.60%
Detailed guidance on pension provisions
Investment modelling tools
Financial advice through a third party
None of the above
Other
58.50%
41.50%
31.10%
9.40%
7.50%
Yes
52.10%
No
47.90%
Monthly
Quarterly
Twice a year
Annually
2.80%
19.80%
23.60%
45.30%
8.50%
54.30%
No. but we're considering it
34.30%
No, and we're not considering it
11.40%
Millenials
Gen Z
of millenials would use an automated pensions advice app
of millenials would use an online pensions portal linked to their bank account
of generation Z workers would use an online pensions portal linked to their bank account
of generation Z workers would use an automated pensions advice app
Data quality is vital to improving the member experience
As well as making sure that members receive the right benefits to the right place at the right time, accurate and up to date information can allow schemes to provide useful additional services to savers –
48%
53%
“You can get to a point where it doesn’t matter what you build digitally – if you can’t tell somebody about it and get them to use it, you are sitting there with the most brilliant idea in the world, but no one uses it.”
of trustees say they don’t have adequate data and would need to improve it first before bringing on new technology
It’s all very well having a digital shop front, but if a member who left you a while ago hasn’t kept you up to date, you probably haven’t got an address for them. That may have been an era before emails, so you need contact information that you simply don’t hold
How did we get here?
22.6
+12%
62%
of workers from younger generations would welcome new portal offering a single view of their wealth managment.
60%
Chris Connelly of the Pensions Administration Standards Association (PASA)
+9%
driving engagement and improving user experience.
Technology solutions for the industry
The recent news about inaccurate State Pension payments (1) should serve as a reminder of the importance of accurate data and technology systems that can adapt to incorporate the complexities of retirement savings. Worryingly, our research identifies a large gap between the accuracy of pension schemes’ data and trustees’ understanding of their position on scheme data. Most respondents – 88% – say their scheme’s data is either “good” or “excellent”, and none rate it as “poor” or “very poor”. However, more than 40% of respondents also say they review their scheme’s data on a yearly basis or less frequently, raising questions over how trustees can assess the accuracy of their data, and how they are judging its quality.
Please rate the accuracy of your scheme’s data / How regularly does your scheme review its data?
Source: (1) ‘UK pensioners underpaid by £1bn after government errors, watchdog finds’, Financial Times, 21 September 2021.
TPR recommends a data review “at least once a year” (2) – but this should not be seen as a default level. Making sure that data is accurate is an ongoing task. A flexible IT and administration system with an online user interface can help by allowing savers to easily update their information. In addition, a smart system that integrates with employer payroll can draw on events such as a change of address to either update details automatically, or send a message to the member prompting them to update manually. One trustee commented that using a third-party administrator means that their scheme is “beholden to what technology they [the third party] can provide”. However, TPR has also made it clear that it expects trustees to engage fully with their providers on data management issues. If the provider is not up to scratch, it is up to the trustee board to find another.
Source: (2) ‘Record-keeping’ section of TPR website.
The benefits of accurate data
Trustees think that the appropriate use of technology can help solve the data issue, with 81% of respondents in our survey agreeing with this. Pension scheme trustees are caught in a ‘Catch 22’ situation, though. The effective adoption and implementation of new technologies to improve member communications and engagement requires accurate and up to date information. However, it is difficult to obtain that information efficiently with outdated IT systems. Inadequate data is cited by nearly a quarter of respondents as a barrier to embracing technology.
What do you believe are the key barriers to embracing technology?
Trustees must find a solution to this problem. TPR has made it clear that schemes cannot take a ‘set and forget’ approach and leave accuracy in record-keeping to a third-party administrator.
12.30%
32.10%
55.70%
It is too expensive / we do not have adequate budget to install the changes needed
Concerns as to whether members would engage with technology
We do not have adequate data and would need to improve it first
Regulation is too stifling
The time it would take to install the technology
We do not need to embrace technology / our scheme is fine as it is
47.20%
43.40%
22.60%
37.70%
29.20%
The changing rulebook is underscoring the need for more investment in technology across the pensions industry. And whilst regulation is pushing the industry to change, those that get left behind may find themselves in a ‘sink or swim’ situation.
More than three quarters of those we surveyed (78%) say they believe members will move towards providers with better technology. The next step is to identify what schemes need and what solutions exist to fulfil those needs. When asked about the most effective ways in which to communicate with members and increase engagement, an improved user experience and easier access to basic information is the most popular response. A consolidated online view of pension savings using a dashboard is a close second.
What is the most effective way to communicate with members to increase engagement?
Auto enrolment has combined a huge volume of people coming into the pension industry for the first time with the majority of providers that were not really set up for this from a technology point of view. It is still heavily reliant on data provided by employers through payroll. For smaller companies, this can be time-consuming. Life in COVID-19 lockdown proved just how important it is to engage and communicate with others digitally. The early indicators are that pension providers have been prompted to rethink their engagement approaches and embrace technology. In a recent survey of FTSE 350 company DC schemes, Willis Towers Watson found that 58% of FTSE 100 companies and 65% of FTSE 250 firms identified improving retirement outcomes as a focus for the next two years. Modernising benefits and constructing a broader financial wellbeing strategy were also top priorities. Enhancing tools and educational materials was a top priority for 68% of FTSE 350 DC schemes overall. (1)
Sam Barton, Smart’s Chief Technology Officer and Group Technology Lead
For trustees looking to improve their data, several technology providers have scanning tools that automate elements of the data cleansing process by connecting to existing services to ratify records, for example. Providers such as Smart have embraced a ‘cloud-first’ technology approach, building a central platform that can be used by all clients. This secure cloud-based system can be adapted constantly to fix issues and keep up with changing regulations and client requirements. This kind of technology eliminates the need for costly and time-consuming re-coding or upgrades, as changes are made centrally and rolled out automatically, and is also independent of the hardware costs and upgrade cycles associated with in-house technology. This approach also means members can access their data quickly using online or mobile platforms, and make changes that are updated in real-time in many cases. On the engagement side, some providers have launched ‘video statements’ in recent years, integrating personalisation technologies to animate information and explain outcomes to individuals. These can provide vital insights into how much members are engaging with the information they are given. Sarah Horan, Director of Independent Trustee Services (ITS), explains “Things like video online benefits statements enable you to understand how many people have seen them. Do they watch through to the end of the video, for example? You can get a huge amount of data online on how members are interacting with your communications, which can then help trustees refine and improve those communications going forward.” The pensions sector could take lessons from the retail sector, she adds, which analyses huge amounts of data on how consumers engage with websites, including how much time is spent on each page or section, what areas of pages draw the most attention and what links are and are not clicked. Horan explains: “If we could just get a little bit of that into the pensions world, it would really help trustees to get a better understanding of membership and what drives them and then help ultimately improve outcomes.”
The cost of change involved in moving from the current statement system to a new simplified statement is just too great
Trustees clearly understand that technology is vital to improving member engagement and financial education.
The term ‘digital transformation’ is being used with some abandon in the market as people try and respond to this. It’s not necessarily a digital transformation, it’s more of a digital revolution that needs to happen. They need to be able to change not just the technology but also the way they approach it.
The dawn of innovation
Targeted and tailored messages are also commonly cited by respondents.
Source: (1) ‘FTSE 350 Defined Contribution Pension Survey 2021’, Willis Towers Watson, 9 July 2021.
Of FTSE 100 companies want to improve retirement outcomes
58%
Enhancing tools and educational materials was a top priority for 68% of FTSE 350 DC schemes overall
TPR has repeatedly emphasised the importance of trustees building technological resilience and establishing contingency plans for their operations. This was thrown into the spotlight last year as vast swathes of the global economy rapidly transitioned to remote working. Smart’s Chief Technology Officer and Group Technology Lead, Sam Barton, calls for a “digital revolution” in the pensions sector and an overhaul of the way technology is approached by providers. “Everything needs to change. Not just the technology – but also the people who run it,” he says.
Five ways technology is changing pensions
By making information more easily available, trustees can make important decisions more efficiently. This also allows them to respond more quickly to regulatory requirements or requests, and frees up more time to address complex issues.
Streamlining scheme governance
Thinking differently about how technology can improve back-office operations can cut costs and save time in a variety of ways. For instance, automating manual processes can save money and reduce the risk of errors, as well as freeing up people to address more complicated problems. It can improve the consistency of reporting to individual members and to trustees.
Shaking up operational processes
Personalised statements based on up to date information can show members their current position and provide forecasts of how much money they are likely to have in retirement. The vast majority (92%) of respondents to our survey agree that tailoring communications in this way would help to drive engagement. Artificial intelligence technology can assess member behaviour and circumstances and adapt the information and data on offer accordingly.
Increasing communication and education to help members plan/save for retirement
Digital identification techniques such as e-signatures and digital passes can be used to verify user identities without the need for paperwork, while distributed ledger technology – also known as blockchain – is being tested for its efficacy regarding the security of online transactions.
Keeping members and pensions safe
More than half – 57% – of survey respondents say an increasing number of members want more visibility over their pension contributions and how these are invested. Through access to accurate, relevant information presented clearly with outcomes in mind, savers can improve their understanding of their retirement pots and adjust their behaviours accordingly.
Making pensions more meaningful
Click icons for details
Most effective
Least effective
A better user experience/easier access to view pension information and investments
An online consolidated view/pension dashboard
Tools to encourage a better understanding and education of pensions – for example, targeted email/text communication, video explainers, pensions calculators – etc
Financial planning tools to assist members understand how much they need in retirement
Pension analytics to help members understand investment decisions
Tap icons for details
Providers such as Smart have embraced a ‘cloud-first’ technology approach, building a central platform that can be used by all clients. This secure cloud-based system can be adapted constantly to fix issues and keep up with changing regulations and client requirements. This kind of technology eliminates the need for costly and time-consuming re-coding or upgrades, as changes are made centrally and rolled out automatically, and is also independent of the hardware costs and upgrade cycles associated with in-house technology. This approach also means members can access their data quickly using online or mobile platforms, and make changes that are updated in real-time in many cases. On the engagement side, some providers have launched ‘video statements’ in recent years, integrating personalisation technologies to animate information and explain outcomes to individuals. These can provide vital insights into how much members are engaging with the information they are given. Sarah Horan, Director of Independent Trustee Services (ITS), explains “Things like video online benefits statements enable you to understand how many people have seen them. Do they watch through to the end of the video, for example? You can get a huge amount of data online on how members are interacting with your communications, which can then help trustees refine and improve those communications going forward.” The pensions sector could take lessons from the retail sector, she adds, which analyses huge amounts of data on how consumers engage with websites, including how much time is spent on each page or section, what areas of pages draw the most attention and what links are and are not clicked. Horan explains: “If we could just get a little bit of that into the pensions world, it would really help trustees to get a better understanding of membership and what drives them and then help ultimately improve outcomes.”
For trustees looking to improve their data, several technology providers have scanning tools that automate elements of the data cleansing process by connecting to existing services to ratify records, for example.
The challenges ahead
Do
Don't
What to do (and not to do) to get ‘tech fit’
Test, test, test
What might seem a sensible idea in the planning phase might fall apart in the real world. Equally, a seemingly outlandish idea might prove to be just what your members wanted. The only way to find out whether these ideas work is to test them. A/B testing of software functionality – in which one group of users sees one version, and another group sees another version – is a great way of gauging an idea’s success.
Operate in a bubble
The principles of Open Banking are permeating the way people interact with financial services as a whole. Your systems should be able to ‘speak’ with each other and with other software and providers elsewhere, without problems or disruption to the member’s experience.
Make the best of your data
This isn’t just about knowing who your members are and what they are paying in. Use their digital ‘footprints’ across your web portals to boost interactions and increase engagement in important areas. Learn from the information you get to improve the user experience of saving for a pension.
Set and forget
The chances are your system will not be perfect from the outset – nor should it be. You should always be aiming to learn from your members’ experiences and adapting, updating and enhancing your systems accordingly.
Start with a blank sheet of paper
Keep your planning simple to start with. What is the aim of your system? Who is it serving? What does a successful model look like?
Replicate the work of others unnecessarily
If a piece of software or functionality exists that does what you need, don’t spend time and money unnecessarily making something else that does exactly the same thing.
The pension companies that can offer the best engagement, the best user experience, the most flexibility around what you can do with your pension, and the ones that make it easy to increase contributions or to model potential income in retirement, will be the winners. Their customers will stay and won’t transfer their pensions away.
It is also not unreasonable to infer that this engaged cohort of scheme members will be saving more for retirement. One crucial part of this success is testing and thinking about members’ experiences – and analysing related data for member behaviour is an important option to consider. Standard Life introduced an analytics function for its workplace pension product last year, based on several years’ worth of data gleaned from how members interacted with its online account and mobile app. (1) This has allowed the provider to introduce specific services aimed at savers at different stages of their lives. It factors in data such as student loan repayments and mortgages, and planning for inheritance or retirement. For a pension scheme trustee board, the data can show how much members are engaging with communications and tailor messaging appropriately, with the ultimate aim of improving pension outcomes. Artificial intelligence technology is being tested by some providers with a view to gathering insights through digital questionnaires, which can then inform the kinds of services that members receive and the prompts they are given. For some, this information can be used to help members construct their own investment plans, according to research from The Economist Intelligence Unit. (2)
However, this does not mean analytics are useless.
Big data
What might sound good to pension professionals might not sound good to members, which is why testing and thinking about user experience, to understand what works and what does not, is really important.
of trustees say that being able to access information using an app would help to improve member engagement
80%
less than half (49%) agree that adding pensions to an open banking-style app would be a “good idea”
49%
As people approach retirement, more active decision-making that can have big financial consequences becomes necessary, calling for a different type of engagement. The industry needs to think harder about nudges and ‘waking’ members up to making active choices that will result in good outcomes. Getting people to think about their financial futures at the right time is a huge challenge, and the pension dashboards, which are due to be rolled out from 2023, should help by strengthening the connection between individuals and their schemes. Dashboards used in the right way as an aggregator of data can potentially be very powerful. It will tackle the current challenge of people making partial decisions with a particular provider at a particular point in time, and not having a holistic view. As Darren Philp says:
However, he points out that dashboards are not a ‘one size fits all’, because they will only be as good as how they are used by members. The real innovators will be those that work out how to build a product and a service around the dashboard architecture to really help members. That will be the acid test of whether the dashboard is a success or not.
“The dashboard can potentially bring that view together, rather than members having to go to five different provincial pension providers and then to the Department for Work and Pensions to get the State Pension. At least we’re starting to remove some key barriers to engagement, by getting that data and removing the need to remember lots of passwords.”
Spotlight on – pensions dashboards
Our research shows there is increasing demand for similar technology to be used to focus on pension savers’ needs. More than three quarters (78%) of respondents say that over time, savers will quite simply vote with their feet and move to pension providers who can provide them with the level of user experience they want. Several respondents highlight the UK’s open banking initiative – which has enabled greater sharing of information between banks and easier switching for customers – as an example of how technology can benefit savers. Some call for TPR to make technology adoption mandatory, in much the same way as the Competition and Markets Authority intervened to force traditional high street banks to cooperate with fintech companies for open banking.
Indeed, almost 80% of trustees say that being able to access information using an app would help to improve member engagement. However, the idea of an open finance platform to mirror the success of open banking is not universally popular among trustees – less than half (49%) agree that adding pensions to an open banking-style app would be a “good idea”. The main areas in which trustees believe technology can help members are by easing their access to pension information (86%) and personalising communications (77%). Technical tools, such as pension analytics to help members understand their investment decisions, and financial planning tools, are also less likely to help, our survey indicates. Comments from some respondents indicate that sophisticated analytics tools may not necessarily benefit members who lack even a rudimentary knowledge of what their pension savings are and how they should interact with them. One suggests the use of a “beginner’s guide to pensions” as part of the scheme’s engagement package, while another calls for “simplicity” in language before the use of technology. This is not just a case of building sophisticated technology and tools – the focus must be on building what people actually need and making the user experience smooth.
If you look at financial services and the banks, some of them are in the forefront of creating apps that allow you to look at your bank account, move money around, and link it with your mortgage and other accounts. It’s all very straightforward. They have made great strides in the last year or two. Pension providers are still gradually waking up to the options.
Sarah Horan, Director of Independent Trustee Services (ITS)
Over the past few years, specialist financial technology companies have disrupted various parts of the financial services industry and brought new approaches and ways of thinking to the sector.
Leading the revolution: Smart’s Will Wynne on building a modern pension experience
Close
Horan explains the benefits of the open banking approach:
Source: (1) ‘How data is helping to empower employees towards a better future’, Standard Life, 14 August 2020.
Source: (2) ‘Creating better retirement outcomes using data, technology and transparency’, Economist Intelligence Unit, 1 August 2018.
There are several different reasons, the most obvious being budget, as cited by almost half of trustees in our survey as the key barrier.
When [you] give people more power, you have to be very careful because experience suggests people do the wrong things for the right reasons. For example, they see the stock market has gone down 30% yesterday and then say ‘let me sell my investments’. No, no, no. It's the whole story of retail investors, they chase the story – ‘I've got to buy more bitcoin, look how much it's gone up’.
If most of the industry agrees with the need to improve engagement and communications through new technology, as our research shows, what is holding it back from moving into the new digital world?
Kevin Wesbroom, a professional trustee at Capital Cranfield
A third of trustees say their scheme is hesitant to put money into improving member communications, and 37% say it is reluctant to put money into a financial programme for members. Other reasons could be an unsupportive provider, regulatory difficulties and the challenging nature of change itself.
The incumbent providers with legacy solutions are not going to get those questions answered by renewing their IBM mainframe contract for another ten years, which is how they have their database renewed. They need to rethink entirely and go to the cloud.
It is time to bridge the pensions technology gap. The pensions sector is decades behind other sectors that have embraced the new digital age – especially during the pandemic. Pension schemes need better data, better management of data and hands-on engagement that educates, informs and furthers pensions discussions that really matter with members. In the digital age, providing members with seamless, transparent and convenient access to their finances is key. Trustees, advisers and providers all know this and are keen to act. The regulatory direction of travel – particularly regarding the imminent introduction of dashboards – will accelerate the changes. The retirement industry has a responsibility to do more for savers, beyond just providing a savings vehicle. The ability of providers to embrace technology will prove critical to their ability to retain customers – and, arguably, to continue to exist at all – in the world of 21st Century pension saving.
Money woes
In summary...
While most trustee boards and pension professionals are eager to talk about member engagement, says Sam Barton, the potential for additional costs is a key concern. He argues that “it is not in the industry’s best interest” for the majority of interactions with members to come through telephone or post, as these are expensive to staff and maintain. However, encouraging engagement through self-service accounts can provide information and facilitate decisions such as increasing contributions without the need for human intervention.
Changing or replacing a legacy system is an expensive and arduous process, as data transfer is seldom straightforward – particularly if the legacy system is in a mainframe and not directly connected to the internet. A total overhaul is not seen as cost-effective by many providers, Barton explains, which has opened the door for new and nimble master trusts to effectively start from scratch and build systems that embrace the latest technology. Trustees may also be nervous about communicating too much information to members. Some expressed a belief that there is a real danger if technology is used to give them inappropriate control of their pensions.
Some survey respondents are concerned about whether members would even engage with apps and member communications (43% of trustees), while more than a third of trustees cite regulatory difficulties as the main factor. Many cite cybersecurity fears as putting them off embracing technology upgrades – this is understandable, given that trustees are ultimately responsible should anything go wrong. However, there is an overwhelming feeling that a technology revolution in pensions is inevitable. Respondents were asked an open-ended question about how they feel the retirement industry will develop with regards to technology, and while there are a few reservations and concerns, almost every commentator says embracing new technology is vital. As one respondent states, “I think with the dashboard coming we are on the cusp of a technology revolution, where we close the gap between the pensions industry and every other industry.”
What are the key barriers to embracing technology to improve engagement?
particularly if the legacy system is in a mainframe and not directly connected to the internet. A total overhaul is not seen as cost-effective by many providers, Barton explains, which has opened the door for new and nimble master trusts to effectively start from scratch and build systems that embrace the latest technology. Trustees may also be nervous about communicating too much information to members. Some expressed a belief that there is a real danger if technology is used to give them inappropriate control of their pensions.
Changing or replacing a legacy system is an expensive and arduous process, as data transfer is seldom straightforward –
