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The UK pensions industry stands at a crossroads. While automatic enrolment (AE) has successfully driven passive participation during the accumulation phase, the challenges faced during the decumulation phase remain unsolved. As an industry, we have enabled individuals to save through AE without taking any action at all, leading to accumulation with often little engagement.
The engagement gap: A recipe for vulnerability
A recent report by the Pensions Policy Institute highlights that transitioning to accessing pension savings requires a level of engagement that many individuals are unprepared for. The complexities of navigating risks such as longevity, inflation, and investment volatility can lead to poor decision-making, leaving many savers vulnerable and, simply, worse off.
Given the complexity of the choices people face at retirement, one might expect individuals to seek professional advice. However, the reality is quite different, in that nearly three-quarters (73%) of those in their late 50s have not received any information on pensions or retirement choices in the last three years. Alarmingly, the majority of defined contribution (DC) pots accessed for the first time were accessed by people who had not sought any guidance or advice.
The need for professional advice
Professional advice is desirable for making informed decisions at retirement, yet traditional advice models often feel inaccessible and costly. The PPI report indicates that many individuals are deterred by the cost and perceived effort required to engage with support services, especially when balancing other life responsibilities.
However, this doesn’t mean individuals aren’t open to advice. The report highlights that 34% of DC pension members express a desire for advice that considers all their pension pots, while a further 34% value support that encompasses their entire retirement finances. It’s clear that individuals need advice, but it must be accessible, and that means affordable.
A commitment to empowerment
“Our goal is to equip our members with the knowledge and tools they need to make informed retirement choices.” explains Stephen Coates, Head of Proposition for the Mercer Master Trust.
“Digital advice significantly reduces the cost of advice and makes it accessible to everyone. The Mercer Master Trust’s digital retirement planning and advice service provides access to advice without any initial fees, and we’ve already seen thousands of members register for it. This service enables members to model various pension scenarios, building a complete view of all their finances, including multiple pots and saving vehicles, to help them understand the implications of their choices.
“By using technology to prioritise personalised engagement, we can help individuals navigate their retirement planning effectively. We are also developing a conversational AI pension guidance agent that facilitates individual interactions, on topics that matter to our members. This not only fosters rich, data-driven conversations, but can also help to address gaps in vulnerability, financial literacy, accessibility and language.”
Mercer welcomes the report by the Pensions Policy Institute and supports its call for innovation and greater use of data to understand the true needs of pension savers. This will better equip members who wish to make their own choices and better equip providers to offer those who don’t the most appropriate default.
