Retirement inequality, deficit, crisis, time-bomb. Those are just a few of the words associated with UK pensions today. Harsh words perhaps, but recent studies show that consumer confidence in long-term savings and pension products is on a decline due to the lack of visibility and uncertainty towards financial markets and emerging regulations.
In response, the Pensions Dashboards Programme was set up in April 20201, to give consumers a digital overview of their pensions in one place. With the Programme’s Staging Plan for Input now open for responses2, and compulsory onboarding potentially beginning in 20233, we believe pensions providers should get on the front foot with their plans now. Below, we detail three concepts that insurers can look to implement positive change in this industry.
Concept 1: Smart Pensions Dashboard
Size of the market: ~43.4 million people4
It’s a fact that savers are struggling to maintain visibility over their pensions, and many are unaware that these can be underperforming, or that their saving strategy is insufficient to achieve the retirement they want.5 We also know that many savers do not interact with their pension providers digitally - and that many are failing to keep track of pension pots when distributed across various providers.6
There is a clear opportunity to offer more proactive and frictionless guidance around pensions to optimize consumers’ retirement planning decisions. Banking providers such as Monzo are using Open Banking APIs to allow customers the ability to view all their bank/credit card balances and transactions in one place.7 There is no reason why the same could not be true for pension providers using similar Open Banking/Finance capabilities to show customers a consolidated view.
- A feature that continuously and automatically provides a consolidated view of pots by taking minimal information input and periodically running a search of all providers
- A feature that breaks down fees and performance, and takes your savings rate into account, to calculate your estimated retirement income
- A feature that detects inconsistencies and future performance issues and provides actionable guidance to course correct.
Concept 2: Retirement simulation
Size of the market: 43.4 million people8
Individuals often lack the right knowledge to confidently make decisions concerning their pensions. Consumers rarely make use of advice when taking out a new pension or drawing down on their existing pension, and are unaware of complex pension rules, and how much they need to save for retirement.9 This often leads to a complete disengagement with retirement planning, or sub-optimal approaches.
Our solution? A ‘digital twin’ that educates customers on best practices and approaches to pensions, based on their personal circumstances. This can offer more proactive and frictionless guidance around pensions to optimise consumers’ retirement planning decisions.
- Takes in your historical and intended savings patterns and predicts your progress towards retirement based on your personal circumstances
- Grants you rewards or achievements for keeping up with your digital twin, meant to incentivise you to stick to your plan and best practices, e.g., reduced fees that month
- Considers wider economic conditions, such as changing pension rules and regulations, that guide the customer on how to proceed with their pension strategy.
Concept 3: Round-up pensions savings tool
Size of the market: 51million people10
It is hard to set aside funds for retirement. Many people just do not think that retirement is a priority at their current life stage, and are not motivated to dedicate time, energy, or other resources to saving for retirement. For those with time on their side, trying to save even a little, and often, has the potential to become a sizable pot one day.
Companies like Tandem, Monzo, and Revolut give account holders the option to round up spare change from a purchase to put into a savings account. We believe there is also an opportunity to reduce the friction and effort of saving for retirement.
- Rounds up transactions on your debit/credit card to the nearest pound and invests the spare change
- Allows you to invest a custom amount with each debit/credit card transaction
- Analyses your spending patterns and retirement outlook and determine an optimum amount for you to save into your pension that month.
From a provider perspective, each of these three concepts has the potential to reach markets of tens of millions. From a customer perspective, these have the potential to help raise customers’ financial understanding and make more informed savings and spending choices in the future.
Find out how Capco is helping financial services providers to grow and provide better customer outcomes with digital tools by contacting Sanjiva Perera.
3. Ibid, pensionsdashboardprogramme.org.uk
4. Potential reach = For each affected segment (Total segment size / Importance of need for segment) *Potential reach: [(26.8m(GenZ & Millennial)+ 28.2m(GenX & Baby Boomers)+10m(flexible)] / 2(medium importance) = ~32.5m
8. *Potential reach = For each affected segment (Total segment size / Importance of need for segment) *Potential reach: [(26.8m(GenZ & Millennial)+ 28.2m(GenX & Baby Boomers)+10m(flexible)] / 2(medium importance) = ~32.5m
10.*Potential reach = For each affected segment (Total segment size / Importance of need for segment) *Potential reach: [(26.8m(GenZ & Millennial)+ 28.2m(GenX & Baby Boomers)+10m(flexible)] / 2(medium importance) = ~32.5m