Consider two regular people: Lynn, a 32-year-old architect in Bournemouth, and Chris, a 43-year-old claims adviser in Preston
It’s relatively safe to assume Lynn and Chris have smartphones and use them for roughly the national average of two hours a day. In that time they shop on Amazon, read articles on The Times website, send a few dozen text or WhatsApp messages, scroll through 25 or so photos on Instagram, get PayPal account updates and check if they have hit 10,000 steps on their Fitbit.
Common to almost all these activities is personalisation: shaping unique experiences with content targeted at the individual. Even ads shown are based around personal profiles. And like Lynn and Chris, most of us are now used to being at the centre of our own digital universe because our data and our apps have put us there.
Contrast that to the world of Chris and Lynn’s pensions. Chances are they are not lucky enough to be part of a defined benefit (DB) scheme, which provides a guaranteed monthly income for life in retirement.
However, they are more likely to be saving into a defined contribution (DC) scheme, where they choose the investments to fund their retirement, but they probably haven’t looked at it recently. And they almost definitely receive an annual packet of papers from their pension provider, written in incomprehensible, snooze-inducing language.
I bet you they don’t have an app calculating how much they need to live on in retirement; one that shows how close they are to achieving that goal or gives tips to reach it.
The disconnect between consumer technology and the world of pensions and savings is huge. Just think about Amazon Prime; a click of a button and Chris and Lynn are done. They don’t think about the complex logistics, computer software or massive supply chain that sits behind the delivery. It simply works around their need.
The frustrating point is that the technology exists; we are just not applying it to pensions. Yes, the industry has created savings and retirement products, but these are more like components rather than the consumer-facing solutions we see elsewhere.
Chris and Lynn need access to their retirement savings in one place. The pensions dashboard, an initiative to allow people to track previous pensions online, is a positive development, but it doesn’t answer key questions such as how much do I need in retirement and what’s the best way to get there?
Government tried to address the lack of individuals saving for retirement by introducing auto-enrolment, whereby almost all employers provide a pensions scheme for employees. A good first step, but contribution rates are woefully inadequate. On top of this, anyone below the age of 30 will not get a state pension until they are 70. A lot can happen over 40 years. Is it prudent for Chris and Lynn to expect a state pension in later life? I fear many are sleepwalking into retirement poverty.
At least Chris and Lynn save into their pension every month, which is a good start. But imagine if, every time they spend money, an extra little bit is automatically saved into their pension. Or every time Chris goes for a run or Lynn goes to the gym, their Fitbit monitors their health, communicating with their digital pensions platform and adjusting asset allocations based on longevity projections.
At the heart of it, how we think about and facilitate savings for retirement needs to change fundamentally. It must be easy, simple, personalised, intuitive and rewarding, more like other consumer experiences. The psychology of savings, the language used and the art of engagement all need be part of the process. It is time for the pensions industry to catch up with the modern world. It is time to get to work.