Futuristic funds: how technology is changing your pension 

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”.

Pensions dashboards

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.