Technology is revolutionising pensions, with some transformative options already available
Technology is revolutionising pensions, in some cases slowly, in others incredibly quickly.
The biggest tech innovation of all is the pensions dashboard initiative, which will require pension providers to feed their data into a centralised hub to give a single view of all your pensions. This project has been years in development and will only start rolling out with the simplest defined contribution (DC) pensions from 2023. But there are plenty more innovations coming down the line that are changing the way we save for retirement.
Hear and now
1 Become a shareholder activist
Pension savers with Aviva and Legal & General can have their say on shareholder resolutions around issues as diverse as climate change, executive pay and child labour, through technology from fintech startup Tumelo. The technology, which is being adopted by Aviva and Legal & General, who are piloting it with a limited number of employers, allows members to see all the companies in their investment portfolio and cast advisory votes on contentious resolutions relating to them.
The savers are informed about new votes and vote results via email or in-app notifications and the providers take the votes into account when formulating their own voting strategy. Early trials have seen significant investor engagement in shareholder votes on issues such as the pay packet of Sports Direct chief executive Mike Ashley. Providers offering Tumelo say it helps scheme members understand what it is they are investing in and raises awareness of the role of shareholders in responsible investment.
2 Keep assets in the pension tax wrapper for longer
Income drawdown customers are able to maximise the tax efficiency of their pension wrapper by only withdrawing what they need thanks to an open banking interface used by provider SEI.
Steve Charlton, DC managing director at SEI, says: “Historically, drawdown investors have had to specify a fixed amount to be paid into their account each month. Thanks to open banking you can now fix a level to which your bank account can be topped up each month, meaning if you spend less, you can keep more in your pension where it benefits from tax-free growth.”
3 Beer today for beer tomorrow?
Financial aggregation platform Moneyhub offers the ability to set up a ”sweeping rule” that means each time the user spends £x on coffee, golf, beer or whatever, a related amount, which can be half, all or 10 per cent, gets swept into a nominated pension account.
“The system will also check the person can afford to do this without running the account dry before the end of the month or week when they are next paid,” says Sam Seaton, chief executive of Moneyhub.
4 Sweep up old pots
With the average UK worker having 11 jobs through their working life, so-called “stranded” pots from former employers are widespread. Providers are keen for you to roll these over into their own schemes and the system is getting faster every year, although it depends where the transfer is from and to.
Robert Cochran, senior corporate pension specialist at Scottish Widows, says: “If you are a Lloyds Banking Group customer, which includes Bank of Scotland and Halifax, you are pre-authenticated so you only need four bits of information to transfer a pension: the name of your employer, an approximate value, the name of the scheme and your date of birth. It’s possible to clean up a left-behind pension pot in six minutes.”
Clare Reilly, chief engagement officer at online consolidator PensionBee, says transfers can take considerably longer, between ten days and two months depending on the pension administrator processing the transfer.
5 VR view of your retirement
Employees of J Sainsbury and other big retailers will be given a virtual reality view of their retirement thanks to a Legal & General pilot designed to help staff visualise how the amount they save will influence their enjoyment of their retirement.
A virtual reality headset experience takes staff on a journey through three different holidays – Brighton beach, a Mediterranean city break and an underwater scuba-diving experience – each representing the sorts of holiday that can be expected for those following low, medium and higher contribution savings strategies, says John Bland of Pension Geeks, a consultancy working with L&G.
The three destinations reflect the three categories of retirement income – minimum, moderate and comfortable – set by the pensions industry to help savers benchmark savings goals. Users are also able to explore a wind farm in 3D, to highlight some of the sustainable investments their pension fund has invested in.
6 Talk to a digital expert
Taking the sort of voice recognition software techniques used by Amazon’s Alexa to the next level, Trulience could be bringing a digital human experience to a pension provider near you soon.
“Digital human” means an eerily realistic on-screen avatar that exists in-browser, with no need for downloads, who can answer a range of questions about your pension. Currently being rolled out to employers in Dubai, the technology will be available for customers of the Smart Pension Master Trust towards the end of 2021, says group managing director Will Wynne.
On the horizon
7 Invest in a smart default fund
Intelligent default funds are predicted to revolutionise the way most of us invest in our pensions. Currently, more than nine out of ten people opt for the “default” fund, a fund set up by the scheme provider for those who don’t know what investments they want.
Default funds offer a one-size-fits-all investment strategy designed to be more or less OK for everybody, but they are not the best for some, taking a line of best fit between investors wanting to take their pension as a cash lump sum, buy an annuity or remain invested through income drawdown.
Some pension companies are part of bigger organisations that already have a substantial amount of information about us, such as post code, salary and, in some cases, medical history. And where individuals agree to share their data through open banking protocols, a greater degree of personalisation is possible. Data such as propensity to clear credit card debt, attitude to overdrafts and credit ratings can give as accurate a picture of an individual’s attitude to risk as a psychometric questionnaire. In future, pension defaults are expected to farm all this data to give individuals personalised default investment options.
Richard Butcher, chair of the Pensions and Lifetime Savings Association, says: “Personalised defaults are no more risky than standard defaults and they produce better outcomes for pension scheme members. At the moment most trustees are resistant to the idea, but once one scheme introduces them, others will follow.”
8 Low-cost retirement advice
Every year hundreds of thousands of UK savers transition into retirement without financial advice, instead relying on interpreting “financial guidance” offered by providers that does not give them a personalised recommendation based on their unique circumstances.
Aon is developing its Well One Money app to be able to deliver full regulated financial advice for pension savers at a price point in the low hundreds of pounds, a fraction of the price typically paid, says Ben Roe, senior partner and head of DC consulting at Aon.