Big changes are coming as tech starts to penetrate the pensions world, Maggie Williams reports.
Over the last 10 years, we’ve seen technology change everyday life – from the way that we shop and bank, through to the way that we consume box sets or make new friends.
But until recently, pensions have remained resolutely tech-averse: a world of paper-based annual statements and disparate data silos.
As a consumer-facing, data-heavy industry, pensions is ripe for a technology revolution. There is the potential to reshape the whole industry, from member engagement to trustee governance.
“To date, the focus has been elsewhere in financial services,” concedes George Currie, policy lead: lifetime savings at the PLSA. “We’ve seen significant regulatory changes in banking, for example, but that level of attention has only recently started to shift towards pensions.”
Adam Jones, chief technology officer at Redington, agrees that the pensions industry has lagged behind, in terms of data, availability of suitable technology and mindset. “For many schemes and firms, there is a shift in thinking required to move to a technology-first model.” He adds: “We found when we were looking around the market for technology tools to solve some of the challenges schemes face, there is a real lack of solutions which combine deep pensions domain knowledge with leading-edge technology solutions.”
However there are also trailblazers within pensions who are finding new ways of engaging with members, streamlining scheme governance and shaking up operational processes using technology.
“It’s a varied picture. Some players are really well advanced and it’s not fair to say that pensions as a whole has fallen behind other areas of financial services,” says Currie. He gives the example of video benefit statements as one way that the industry is responding. “These are much more interactive than traditional paper statements, and an interesting way to help engage people. But often the way schemes use technology is a result of the scale of resources that they can deploy.”
Darren Philp, director of policy and communications at Smart Pensions, argues that pensions dashboards – based on a host of technology initiatives such as common data standards, online access to pensions information and user-centred design – will make pensions more tangible for members. “Dashboards help bring people’s finances into the 21st century. We all expect to have access to information all the time, and yet we know how hard it is to get details about pensions.”
Pensions-only dashboards could just be the start, says Philp. A longer-term aim might be to enable consumers to see all of their finances – including pensions – in a single place. Wider industry initiatives such as Open Banking, which enables developers to build innovative apps and interfaces around banking data, are already starting to make this a reality.
However, cautions Philp, consumer technology requires more than simply pulling figures together in a single place: “It’s about making things as simple and as easy as possible. How consumers respond is not a given – you have to spend hours on insight and user testing to make sure the nudges and communications you use have the desired effect.”
The Covid-19 effect
There are also plenty of opportunities for schemes to improve governance through digital means. Jones says that Covid-19 has forced a shift in the way that trustee boards and their providers work. “We are seeing schemes readily adopt remote working as a result of Covid-19, and this has led to a change in the way they are approaching key aspects of scheme management and governance.”
For most trustee boards, that’s meant replacing traditional quarterly face-to-face meetings with shorter, more frequent video conferences. Jones adds that this is part of a wider trend: “We are seeing a move away from static quarterly reporting towards real-time data and analytics. This is helping schemes make better, more timely decisions.”
Covid-19 has also meant that scheme administrators and others have had to re-think how they operate. That, says Jones, has not only proved how technology can support staff working collaboratively from multiple locations, but “also opens opportunities to review and revisit operating models and talent plans.”
Members’ behaviour has changed too as a result of lockdown. “We’ve seen more members registering for online access and to use platforms,” says Currie. “This could help to develop engagement and understanding over time as members interact more frequently with their pension.”
He adds that, as members become comfortable with accessing pensions information digitally, there will be greater opportunities to engage with them. “We are seeing more innovative apps that, for example, help people to see where their pension is invested. Members are increasingly aware of the impact of their actions on the environment and climate. I think being able to see where they are invested can help to facilitate engagement with their pension savings and pensions journey.”
There is unlimited potential for technology to revolutionise pensions. Increased regulatory focus, new innovations from providers and greater willingness from members, trustees and the wider industry to embrace its potential could soon change the way we view retirement saving forever.
10 ways technology is changing pensions
- Rethinking trustee meetings – Covid-19 has forced many trustee boards to change they way they operate, replacing quarterly day-long meetings with shorter, more focused video conferencing calls. Digital document management has replaced paper board-packs, and both schemes and providers have had to review whether a ‘wet signature’ is always necessary as a result of lockdown.
- Make pensions meaningful – Pensions dashboards have a great part to play in helping people see all of their savings in one place. And that could evolve further, showing pensions information alongside other financial data, using standards such as Open Banking.
- Help savers plan for retirement – Modelling tools can help members better understand how much they need to save for a minimum, moderate or comfortable level of savings. The PLSA’s Retirement Living Standards are used as the basis for some modelling tools.
- Communicate with members in new ways – From video statements to virtual reality, technology offers far more varied ways of getting messages to members in a format that resonates with them.
- Solve the small pots problem – Inactive pension pots are becoming a major headache for master trusts in particular, so much so that Pensions Minister Guy Opperman launched a new Working Group in September to address the problem. Technology and consistent data standards can help members consolidate small, disparate pots together, or transfer them between providers.
- Support defined benefit investment strategies – Institutional investment platforms have the potential to make managing investment strategies more straightforward for DB scheme trustees.
- Keep members’ pensions safe – Savings scams, and the risk of cyber attacks on schemes themselves, have become a part of day-to-day life for the pensions industry. Making sure that schemes’ data is kept safe and that members are protected as much as possible from scams requires a combination of risk management, good technology and effective communications.
- Help schemes stay compliant – ‘Regtech’ – technology that helps pension trustees (and others in financial services) automate compliance procedures – is a growing area.
- Nudge members in the right direction – From apps to avatars, there are many innovative ways that technology can be used to provide ‘nudges’ to savers and encourage them to build up their pension savings over the long term.
- Offer education, guidance and advice – Digital access to financial education, guidance and even financial advice could help scheme members to make more informed decisions about retirement.
The PLSA’s first Tech Conference will be running online on 25-26 November 2020.