Technology is transforming our financial lives, with pensions no exception. What are the big trends on the horizon, and how can savers, managers and companies prepare for the future?
The sector has seen a range of changes in recent years. Perhaps most notably, there are more younger savers than ever before: members of Gen Z are likelier to have opened a pension fund than Millennials and Boomers at the same age, according to PensionBee.
This tech-savvy generation is entering a sector that’s undergoing a rapid evolution, making the whole process of signing up, saving and monitoring your pension far easier than ever before.
Changes in savings
Take consolidation, for instance. This has grown in importance as the world of work has changed. Today, the old concept of a ‘job for life’ is far from the norm. In the decade leading up to 2017, the average UK worker spent just under five years in a role, while some 9 million Brits have changed jobs since the start of the pandemic.
In that context, consolidating pensions from myriad roles is big business. Older savers are particularly likely to have multiple pension pots saved with previous employers: reminding them to follow this up is crucial.
Other changes are helping less-savvy savers top up their funds without much active decision making. As an offshoot of the trend for personalisation, ‘auto round-ups’ round up contributions on a set date, while ‘auto-escalation’ increases them over a period of time. “Auto-escalation is the next step after automatic round-ups and is likely to have a more significant impact over the long-term,” says Romi Savova, CEO of PensionBee.
With state pensions shaky, more people are educating themselves about their pension options considering their specific personal circumstances. Personalisation is vital as savers take ownership of their financial future.
Enhancing the digital provision of pension information helps savers forecast what they will need to save by when. Even pension-age savers are now more open to digital interactions, with as many as one in three over-75s opening a new online account during lockdown, according to digital identity specialists GBG.
“By arming savers with easily accessible, up-to-date information, we might finally be able to dispel the belief that pensions are too complex to engage with or only relevant at a certain age,” Savova explains.
Finally, technology is helping to tackle pension fraud, with measures from secure identity checks to bank-grade encryption. Traditional, knowledge-based authentication is being phased out as scams become ever more sophisticated.
Biometric technology is proving a particularly essential tool in the fight against fraud. Spencer Lynch is director of innovation, wealth, life and pensions at GBG. “It gives funds and administrators greater confidence that they are actually engaging with the member at any given point in time,” he says. This also complements the trend for personalisation, with younger savers less resistant from a privacy point of view.
Learning to adapt
What will these advances mean for plan managers, savers and companies? To make a real impact, they must help savers visualise what real retirement actually looks like, says Damian Stancombe, partner and head of the DrumRoll creative agency at Barnett Waddingham. This demand isn’t just related to investments, “but what retirement is financially, physically and mentally”, he says. “It’s not all monetary. If we haven’t been there yet, how can we know what it looks like?”
Empowering savers might benefit them but could pose costs for the industry. “Platforms may be giving members the ability to have far more control of their options and decisions, but businesses need to be mindful of how to wield that power,” warns Stancombe. “If a member makes a poor decision, this could open an organisation up to fault claims and class actions.”
Many companies are simply not ready for the pension-tech revolution. “Too many plan managers and companies are not thinking about the savers,” says Samantha Seaton, CEO of Moneyhub. She notes that the Financial Conduct Authority (FCA) is bringing in the Consumer Duty, which is scheduled for July 2022 and aims to encourage a higher level of consumer protection in retail financial markets. This “speaks volumes about how slow plan managers and companies are at responding to savers’ needs”.
Consumers today are more conscious of the ethical credentials of their pension funds. The long-promised pensions dashboard could help them choose and monitor their investments more effectively.
The pensions dashboard is a technology ecosystem that will show a saver all their pensions information online and in a secure manner. With pension fund investments in the UK amounting to more than $3.59tn as of 2020, this piece of pensions tech presents an opportunity.
“Commercial dashboards that provide essential information to savers on the value of their pensions, the cost of that pension and the underlying holdings and what that means for people and the planet are an incredible opportunity to change the way we all interact and engage with our long-term savings,” says Seaton. “This is brilliant for savers and the wider impact for good that pension funds can have.”
With better engagement and education, the pensions dashboard could eventually provide a “two-way exchange of information,” says Tom Skinner, founder and financial planning director at Barnaby Cecil. “Platforms could then gather information about how investors want their money to be used, which should mean investment products are provided which are a closer match to an individual’s ethical requirements.”
Based on the use of similar dashboards in other countries, all pension schemes are likely to receive at least 20,000 ‘find requests’ a day, or one every couple of seconds, once the dashboard system is operational. The industry needs to be ready to deal with this volume of enquiries.
In the immediate future, it seems the reach of the dashboard will extend only to providing accurate information about a saver’s holdings at any point in time. In the future, however, this should eventually lead to savers asking more questions about just exactly where those funds are being invested.