Be careful what you wish for when it comes to engagement of investors.
Solving the riddle of engaging employees with their retirement savings has, of course, been a topic for schemes for decades now.
How do you ensure members are saving enough? How can you get them to make decisions about their default funds? How do you manage their expectations? And in many cases, how can you get them to just log on and check their details on a website?
Schemes certainly talk a good game when it comes to their wish of getting more savers involved, but I’m not sure they appreciate the levels of transparency and accountability this involves.
The entire industry doesn’t really desire that level of input.
The pension dashboard is a start, though it is a piecemeal solution to a fairly major problem.
It won’t encompass all schemes and so having a partial view is almost as good as having nothing at all in terms of planning. For it to be effective it needs to be wrapped into something more substantial.
Whenever the subject of engagement arises you can guarantee someone will breathlessly mention the US 401K market and the Australian superannuation scheme – always with a yearning look in their eye, like they’re remembering their first love.
It’s a fruitless exercise trying to compare these models, and besides, the answer to engagement is closer than it has ever been before. The solution, as so often is the case these days, lies in technology.
Earlier this year the Pensions Policy Institute published a paper that broke down savers in to four categories on a sliding scale of how much interest they showed in their retirement savings. There were threshold adults who had just started out, protectionists savers who took an interest but only so they could make sure money was going into the account, sceptical speculators who wanted more specifics on charges and investments, and market investors who were hands on with their pots.
The PPI’s conclusion was that schemes should be adaptive to the different scenarios to ensure that each type is served.
It has to be much simpler than that, and this is where taking a leaf out of the book of Monzo would benefit.
The pension dashboard is backward looking – what younger savers want is a picture of the future.
In the last decade consumer behaviour has evolved hugely. The modern consumer is used to having information at their fingertips that is up to date and presented in an easily understandable format.
Even the most modern of DC schemes is leap years behind the curve in this respect.
The spending summaries on Monzo, displayed with maps and attractive icons, plus other apps that let you round up spending to put money in a savings account, have done that most unlikely thing, made young people interested in budgeting. They’ll even boast about their bank account. Imagine someone showing off about their pension!
Schemes need to give employees something similar – the ability to play around with their contribution levels, risk appetite and planned retirement age to identify a strategy that could work for them. A saver could even check their pension on the bus on the way home.
This panacea is not beyond the realms of probability. But again, implementing it in a piecemeal fashion, only giving savers want schemes are willing to divulge, won’t work.
So the question becomes whether schemes really truly want extra engagement. Sure, they talk a good game, but words don’t match the actions and crucially, the investment.
Engagement equals accountability. On one hand you are able to manage expectations, which is going to be crucial for those 10 million current sitting in master trusts who make up most of the estimated 12 million undersaving for retirement.
On the flipside though, accountability equals awkward questions about charges, fund performance and strategy.
The rise of Monzo has coincided with the rise of passive funds and companies such as Vanguard.
The focus on cost in investment and the fall out of fashion of active management has come at the same time as a decade-long bull run that has made it seem impossible to lose money.
In this environment schemes have to prove their value, and you can’t do that if you don’t know about cost and performance. Ethically- minded investors want to know where all their money is invested all the time, not just once every six months.
Greater transparency is the answer to most of the ills in financial services.
But if schemes want greater engagement they have to be fully prepared for total transparency and accountability.