Will technology revolutionise the pension industry, and is it already doing so? There is a reasonable consensus that the key driver of the next phase of change will be open data along with changing consumer attitudes to its use.
It could mean the broad pensions ecosystem, currently a combination of people, paper and internet, will be increasingly, and perhaps eventually almost totally, online. That in turn brings a series of questions about where corporate advisers, trustees and employers need to position themselves within this developing system.
Aon partner and head of UK retirement policy Matthew Arends says: “Technology has already transformed pensions and will continue to do so in future. When I started in the industry nearly 30 years ago, we shared computers, and all the actuarial valuations were run overnight on a mini-computer in the basement. Now far more complicated modelling is run on individuals’ laptops in seconds. The transformation in the understanding of the risks inherent in pension schemes – both DB and DC – brought about by the ready availability of computing power is staggering.”
He says that Covid-19 and lockdown have also radically accelerated the process.“In lockdown, we have been able to carry on seamlessly with home working via investment in technology. This has even extended to our frontline call centre colleagues responding to member questions, who have delivered an uninterrupted service despite the ‘call centre’ now being everyone’s homes – all thanks to technology. This would not have been possible even a few years ago,” says Arends. “Behind the scenes, the development and use of technology in the pensions industry has changed beyond recognition.”
Yet have pension scheme members experienced the same pace of change? “Yes and no”, says Arends. “I used to have to wait for my annual DC benefit statement to arrive to know how much I had invested – and even then, with a significant time lag. Now I can look that up any day I choose, a big step forward.
“But technology has so much more to offer members by engaging them better in their pensions, savings and financial commitments. In particular, technology could fill the advice void and provide individuals with credible options for managing
their pensions either instead of or as a precursor to speaking to a human adviser, and could do so at a price that would be much more accessible.”
“Aside from the questions of data ownership and processing use, Big Data for pensions can only begin with the successful launch of the pensions dashboard. First and foremost, this will re-unite individuals with their pensions savings. Only after the dashboard has been successfully embedded can we think of mining its data to form a better understanding of pension savers and their savings.”
Pension providers point to significant changes in customer behaviour when financial information is brought together.
Scottish Widows senior corporate pensions specialist Robert Cochran says when running events with advisers and employers, one exercise involves thinking about how a Google, Amazon or Uber would handle and simplify this kind of data – looking 10 years out.
“People will probably want to run this through their phones where they can keep track of everything,” he says.
“We are not so far away from where you can have all your financial information controlled through your phone. The Open Finance initiative means it won’t matter who it is with and we’ll move away from the idea of screen scrapes to APIs for everything.”
“To get to a pension dashboard service that works, you’ll have a single pension finder service that goes and finds all your pensions, and which is presented back as a common set of APIs.”
Already for Lloyds Bank and Widows customers, where pension information and banking information are combined, he says the figures for those seeing their pension information are rocketing.
In August 2017, people checking their pension through Widows pension portals were 8,500 a month, rising to 50,000 in May 2018. With pension information sitting alongside internet banking and then mobile banking by June 2019 the pension information was being seen 7.7 million times a month.
“People generally have three questions about pensions – what have we got, is it enough and what can I do next? The first will be answered by this technology. The challenge is helping people answer the next two,” says Cochran.
He sees silos housing different products, often currently served by different intermediaries, breaking down. The 2020s will be a decade of financial connectivity.
“It’s a question of who plays what role. It’s also about data control ownership as well. In a master trust, the trustees are the data controllers, but the individuals will want to be able to free their data up. If you look at Money Hub, or Mercer Money, they aggregate all this, linking into open banking, linking into their products. I’m not sure all EBCs will want to do that, but they will want to have solutions.”
Turning to employers, he adds: “Employers are asking us about financial wellness, but it depends what financial wellness means. Is it building up rainy day pots? You need to have solutions; it is not just salary finance?”
Considering how this combines with education, guidance and advice, Cochrane suggests it is probably quite easy to find the education and that guidance may well come from the single financial guidance body.
He says that employers are going to want to offer more but not all the solutions are there yet. And likewise, with corporate advisers, some will have developed partnerships. They’ll likely segment the workforce into different groups partly determined on value, and they’ll have to create solutions and support that sits alongside this.
“But it definitely feels like we’re in this place where everything is starting to get connected together.”
How does competition play out in this connected scenario?
“One of the key challenges will be trust,” says Cochran. “You might trust a portal to display the information, but you might not trust it to look after your money, you might trust someone else to give you advice. Trust will have to be earned and that will become a competitive situation.”
Samantha Seaton, CEO at open banking and open finance platform MoneyHub, says: “We’re heading towards an open data world and whether the pension companies and investment companies think it’s beneficial or not, is almost irrelevant.
“The consumer is in a better place now in terms of control of their data than they’ve ever been before.”
That, combined with an ‘API economy’ and the need for businesses to do things more efficiently, means change is coming.
“We are not going to shuffle bits of paper around the world. There will be a day where the only way you can consolidate all your pensions is if you can connect them up.”
She suggests a situation where an algorithm may help decide which pensions can be consolidated, which should be left where they are with a “clean way of being able to surface what firms should be doing with a customer, which is verifiable, correct, with a full audit trail”.
She adds: “With this API economy, a consumer with consent driven control, combined with the fact that businesses just have to get more efficient to survive, that’s why this open finance, open data is coming.
“But if you go and talk to any of the major players in the pension world, they tell you this is 10 or 15 years away. I just think they haven’t got their head around it.”
She says that the value of true advice is often underestimated. The technology will take you so far, then either you’re comfortable continuing with the digital journey and doing it yourself, or you’re really not and are prepared at that point to pay for some advice.
“I think this is a growth market not a contracting market, but you want to do that efficiently,” she says.
FTRC director Ian McKenna adds: “When historians look back at Covid-19 in 2050, it will be viewed as the trigger and the catalyst for far wider changes. In the context of this huge amount of change, I don’t think a mono-solution workplace pension fits anymore.
“Having a vehicle just fit for accumulation in the working environment in the next 30 or 40 years and when retirement as we know it is virtually over anyway, means that pensions as we currently know them, and especially master trusts, are not fit for purpose. It is a solution designed around the 1990s that doesn’t fit 2020 or 2030.”
He says many providers haven’t got the resource to create the more flexible solutions consumers need and which employers will want to offer.
Andrew Cheseldine, a professional trustee at Capital Cranfield, who covers both master trusts and standalone DC trusts says that technology and APIs can sometimes be moving so swiftly that tech from even three years ago can appear outdated.
He argues the best comms may become a driver of consumer decisions about where they hold their pensions, especially where investment options and charges are very similar.
“Someone may say I don’t like ABC DC scheme. Can I transfer that pot to where I do have comms that work and which I understand. It might not be quite the best product or best investment option or even best charges, but the simplicity of use will be crucial. There will be consolidation
into the good communicators,” he says.