Q&A: Technology fuels meaningful pensions engagement

Why has engage­ment become an increas­ing­ly impor­tant met­ric in the pen­sions indus­try?

It’s large­ly been dri­ven by the shift from defined ben­e­fit (DB) to defined con­tri­bu­tion (DC) pen­sions, accel­er­at­ed by the intro­duc­tion of auto-enrol­ment in 2012 and then fur­ther reg­u­la­to­ry changes in 2015 giv­ing DC scheme mem­bers more con­trol over their sav­ings. In a DB scheme, engage­ment isn’t ter­ri­bly impor­tant. As long as you stay employed until your retire­ment date, you can have a degree of cer­tain­ty about what your retire­ment income is going to be. It is very sim­ple to under­stand. DC schemes, on the oth­er hand, are far more com­plex. As house­holds invest in assets, which have a degree of risk and evolve dynam­i­cal­ly, retire­ment income is less cer­tain and influ­enced by per­son­al invest­ment deci­sions and the degree of risk tak­en on. If some­thing is more com­plex and less cer­tain, and it needs peo­ple to under­stand a lot more about what they are doing, it requires greater engage­ment.

Has engage­ment in pen­sions increased over the last decade?

Yes, but not by enough. We’ve been track­ing engage­ment, at the high­est lev­el, since we first entered the work­place pen­sions mar­ket in 2011. In 2012, around 10 per cent of peo­ple viewed their pen­sion online at least once a year. Now, it is just over 30 per cent, so a three­fold improve­ment. While it is great that one in three peo­ple now engage with their pen­sion dig­i­tal­ly, at least once a year, that means two-thirds still don’t, so there is clear­ly a long way to go.

How is tech­nol­o­gy able to increase engage­ment fur­ther?

There are a num­ber of ways, one of the most impor­tant of which is per­son­al­i­sa­tion and answer­ing ques­tions that are mean­ing­ful to each per­son. Every pen­sion scheme mem­ber should be able to vis­it a mobile app or web­site and imme­di­ate­ly under­stand, in a digestible for­mat, how much they’re going to receive as a retire­ment income based on what they’re cur­rent­ly sav­ing and what prod­ucts they’re sav­ing into. In the DC world, we present this income as a like­ly range, along with edu­ca­tion­al infor­ma­tion on how they can influ­ence that. Peo­ple now retire at dif­fer­ent ages and in dif­fer­ent ways. For exam­ple, some take ear­ly retire­ment or semi-retire, while oth­ers come in and out of retire­ment, so it is essen­tial we help peo­ple to per­son­alise their pen­sion to their own spe­cif­ic needs. Tech­nol­o­gy is mak­ing this more inter­ac­tive and it is also allow­ing peo­ple who haven’t tra­di­tion­al­ly been able to afford a finan­cial advis­er to access per­son­alised robo-advice, which is becom­ing a real­ly impor­tant ser­vice.

Are you find­ing that savers are also becom­ing more inter­est­ed in the spe­cif­ic com­pa­nies their mon­ey is invest­ed with?

Increas­ing­ly so, but I think a lot of peo­ple still look at their pen­sion fund and have no idea that under­neath it they are prob­a­bly invest­ed in some very excit­ing busi­ness­es, which real­ly inter­est them, such as Ama­zon and Tes­la. Tech­nol­o­gy can increase engage­ment in the econ­o­my more broad­ly by help­ing peo­ple to under­stand they are direct­ly par­tic­i­pat­ing in some of the great­est inno­va­tion tak­ing place around the world. Equal­ly, it allows them to direct­ly influ­ence issues that are impor­tant to them on a per­son­al lev­el. With­out com­pro­mis­ing the impor­tance of pro­fes­sion­al asset man­age­ment for their life­long sav­ings, they can influ­ence the extent to which their pen­sion has a pos­i­tive social and envi­ron­men­tal impact based on the par­tic­u­lar com­pa­nies it invests in. Tech­nol­o­gy can allow them to not just see the impact of their invest­ments, but set con­straints on cer­tain things they care about as well. For exam­ple, if they don’t want to invest in com­pa­nies which con­tribute adverse­ly to cli­mate change,  they can set con­straints around that. Half the world’s cap­i­tal comes through pen­sions from medi­an-income house­hold sav­ings, and tech­nol­o­gy is cru­cial to giv­ing savers a direct role in how their mon­ey is allo­cat­ed and the effect it has. By doing so, it not only boosts engage­ment in pen­sions, but helps direct cap­i­tal towards com­pa­nies help­ing to build a more sus­tain­able future.

Automa­tion is most com­mon­ly asso­ci­at­ed with cost reduc­tions; is this also the case with pen­sions?

Undoubt­ed­ly, and it’s more close­ly linked to engage­ment than you might think. At the sim­plest lev­el, tech­nol­o­gy removes the need for paper, which has his­tor­i­cal­ly fea­tured heav­i­ly in work­place pen­sions due to the num­ber of forms that need­ed to be com­plet­ed. If every time I want to do some­thing I have to fill out a piece of paper, that makes me less like­ly to do any­thing. By tak­ing it fur­ther and automat­ing the entire end-to-end process, the impact is trans­for­ma­tion­al. Ten years ago, pen­sion admin and invest­ment costs ran at 1 per cent a year or more. Today, cer­tain­ly in a large UK employ­er, it is around 0.2 per cent. That reduc­tion over 30 to 40 years of retire­ment sav­ings actu­al­ly increas­es your medi­an house­hold retire­ment income by about 40 per cent, which is huge. That sit­u­a­tion is even more trans­for­ma­tion­al, if house­holds con­sis­tent­ly save and allo­cate their invest­ments over the long term into growth assets, rather than bank deposits. Tech­nol­o­gy and automa­tion have played an absolute­ly fun­da­men­tal role in both sus­tain­able cost-reduc­tion and access to growth invest­ments for UK house­holds.

What is your vision for the future of pen­sions?

Our ulti­mate vision is every­body has a per­son­alised pen­sion that is tai­lored to how and when they’re going to retire and their indi­vid­ual pref­er­ences around how their funds should be invest­ed, accord­ing to their inter­est in key themes, such as sus­tain­abil­i­ty and diver­si­ty. Pen­sions will be acces­si­ble entire­ly through mobile and will help peo­ple, with vir­tu­al per­son­al finan­cial advis­ers, not just in the work­place, but as they tran­si­tion into retire­ment or some form of flex­i­ble retire­ment. Clear­ly, deliv­er­ing that kind of per­son­al­i­sa­tion and engage­ment to ten to twen­ty mil­lion house­holds requires sophis­ti­cat­ed tech­nol­o­gy and algo­rithms. FNZ and the indus­try at large is about a third of the way to deliv­er­ing this vision and we are firm­ly focused on get­ting there as quick­ly as pos­si­ble. We are also invest­ing heav­i­ly in bring­ing the sav­ings, retire­ment and wealth man­age­ment plat­form, which we have suc­cess­ful­ly built here in the UK, to oth­er key inter­na­tion­al mar­kets.

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