Why data must reshape retirement savings
Employees now take more responsibility for their pension planning than ever before. As a result, employers must also re-consider the ways in which they support workers as they prepare for the later stages of working life.
Many of the themes at the 2018 Pensions and Lifetime Savings Association (PLSA) conference, held in Liverpool last week, showed how technology and data can help to reshape the changing world of lifelong savings.
Help savers plan
In their first ever joint statement, the Pensions Regulator and the Financial Conduct Authority (FCA) – the two bodies responsible for different aspects of pensions regulation – committed to closely examining the ‘customer journey’. They will be “exploring how disclosures and information provided by schemes and providers, as well as guidance and advice services, aid members in their decision-making.”
This scrutiny is part of a wider trend. Former director of the CBI, John Cridland’s 2017 review of the state pension age, and the PLSA’s Hitting the Target report, released in July 2018, both called for mid-life MOTs to help employees in their 40s understand what they are on track to receive in retirement and what they can do to maximise their retirement savings.
The data angle: A customer journey or mid-life MOT will only be as good as the quality of the data available to support it. That means, for each individual, being able to combine information on multiple pension savings pots, the state pension and other forms of saving into a single view. It also means taking other lifestyle factors, such home ownership, into account.
At the conference, pensions minister Guy Opperman reiterated his support for the delayed pensions dashboard project, which will enable employees to see all of their pension savings in one place and should therefore play a central part in a mid-life MOT.
He also told schemes and providers alike that they should be preparing data now for use in dashboards and other similar products. “It is the direction of travel, so why would you not prepare for it now?”
Build trust and transparency
According to the FCA, 137,777 pension pots were withdrawn in cash in the second half of the 2017/18 financial year. While that was a decrease of 9% on the previous year, and 87% of the pots were less than £30,000, that is still a substantial figure.
And, according to research by LCP presented at the conference, much of that money is being transferred into banks and building societies where its owners can ‘see’ it, because pensions aren’t seen as trustworthy. That is being exacerbated in some cases by impenetrable annual benefit statements and inappropriate communications.
The data angle: consumers are used to being able to see their bank statement or savings data online as a matter of course. Pensions have lagged behind – and could now be suffering as a result.
Instant access to information shouldn’t necessarily mean instant access to pension savings, but transparency needs to be at the heart of future technology development. Otherwise, savers will move their money elsewhere – and that may not be to their best advantage.
The PLSA also unveiled its Simpler Annual Statement design at the conference. This condenses a pension statement into a page of A4, explaining the value of a pension and what that means in terms of income in retirement. There was standing room only for the launch – a positive sign that providers and schemes alike are keen to be more transparent.
Get ready for young savers
Generation K - those aged between 15 and 24 - are ‘fundamentally shaped’ by technology, according to economics professor Noreena Hertz who gave a keynote presentation.
This generation spends as much as eight hours a day online, so will expect to be able to manage every aspect of their finances – including pensions – through technology. That has implications for other workplace benefits too – Hertz says that Generation K expects a high degree of personalisation and to be treated as unique. Only 6% of this age group say that they trust big businesses to ‘do the right thing’.
The data angle: this age group will grow up in a very different retirement savings environment from previous generations, and they won’t wait around for pensions to catch up. There is no ‘pre-digital’ in their world. Hertz’s research has found that Generation K is already profoundly worried about their finances - if schemes and providers want to capture the interest of the youngest savers in the workforce, they will need to focus on gamification – and on helping them to relate to their older, ‘future selves’.
Support the changing nature of retirement
Are ‘retirement’ and ‘pension age’ outdated concepts? The rise of flexible working means that retirement is no longer an all-or-nothing event. Employees have access to their pension savings from the age of 55 – which makes the idea of a ‘pension age’ (other than state pension) almost redundant.
The finance industry has used ‘at-retirement’ as shorthand for access to pension pots from the age of 55 – but that too could be a misnomer. A panel debate at the conference asked whether we should now talk about and plan for ‘access age’ (so, the point at which individuals can start to use their pension savings) rather than ‘retirement age’.
The data angle: thinking in terms of an ‘access age’, rather than a ‘retirement age’ changes the debate for both employees and employers. There isn’t enough information yet about the relationship between access to pensions and changes in working patterns. Are employees financing reduced working hours or career changes using their ‘at-retirement’ pension savings? If so, what does that mean for the savings they’ll have left when they leave the workforce completely?
More data will be critical to understanding how best to support older workers and to support employers with future workforce planning.
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