Why purpose, personalisation and pace must shape modern pensions
This article was first published in FT Pensions Expert
It is no secret that few people engage with their pensions. More than half of UK workers do not know the size of their pension pot.
The complexity of taxation, the lack of investment transparency, and the indecipherable documentation for myriad pension pots combine to deter even the most determined saver from facing up to one of life’s most important challenges.
But the anticipated launch of a government-backed pensions dashboard that will give people a single view of their retirement prospects will transform customer engagement.
As people find it easier to view their pensions, trustees, administrators and advisers will have an unprecedented opportunity to engage with their members, differentiate themselves with unique offers and build long-term relationships.
As people find it easier to view their pensions, trustees, administrators and advisers will have an unprecedented opportunity to engage with their members, differentiate themselves with unique offers and build long-term relationships
To achieve all this, they need to focus on purpose, personalisation and pace.
Have a clear purpose that your customers relate to
As we emerge from the challenges of 2020, consumers are increasingly looking to invest their pension money in pension schemes that share their sense of purpose and values.
Trustees need to demonstrate they are investing their own money sustainably and proactively influencing diversity and good governance within the companies in which they invest.
For example, Legal & General recently committed to vote against the re-election of FTSE 100 companies’ nomination committee chairs if they fail to diversify their leadership teams by 2022.
Every engagement with the member — from social media to product documents — offers an opportunity to communicate purpose and better connect with them.
There are many opportunities to put this into practice, but the most powerful is during registration.
For example, when joining a new pension scheme as a result of starting a new job, an employee will receive multiple communications updating them on the process and asking them to register with a new online portal.
Communicating the purpose of the organisation in which they are now trusting their long-saved pension pot provides an immediate bond with the customer, and could significantly increase the likelihood of the individual transferring their previous pots to the new provider.
Personalise your offer
Pension schemes serve a heterogeneous population. The way to engage a recently auto-enrolled 22-year-old is likely to be wildly different from a 60-year-old with multiple pots contemplating a phased retirement.
For example, the former will need a good rationale as to why they should not opt out of their pension to increase their take-home salary.
On the other hand, the 60-year-old could be anything from a tech-savvy, wealthy individual looking to consolidate pots and plan a phased retirement, through to someone with minimal savings needing to eke out a living to a deferred retirement date despite limited technical and financial knowledge.
Yet many pension schemes continue to issue the same annual statements and retirement communications to all their customers. Engaging with members takes a personalised approach to the content, channel and timing of your interactions with them.
As a first step, think about how you might be able to drive better consumer outcomes by pre-empting ill-informed decisions, such as a withdrawal from a pension that attracts higher rate income tax.
Then test the effectiveness in reducing poor decision making by proactively contacting individuals with educational material and tracking their responses. Specific tests like these will provide clear benefits and inform investments in data infrastructure later.
Drive change at pace
The time taken to transfer a pension varies from an average of 16 days for a defined contribution pot to as much as six months for a defined benefit transfer.
Digital-first solutions that do away with manual processes altogether are a sure way to speed things up.
This is particularly important in the master trust space, where companies like Smart Pension, The People’s Pension and Nest are dealing with millions of customers with small pots initially.
The pace of internal change is also a challenge in this race to digitise. Companies have rushed to implement agile approaches that deliver change in a more collaborative, incremental and customer-focused way.
Yet many are failing to maximise the benefits of such an approach because their second line risk and other support functions have not transformed in parallel.
Administration companies that have made this transition effectively have largely done away with traditional risk committees, empowering individuals to make decisions within the regular cadence of delivery.
Purpose, personalisation and pace provide a pragmatic, proven set of principles for all trustees and pensions administrators to adopt. As pensions dashboards increase customer engagement, there has never been a better opportunity to drive growth by revamping your member experience.