What do you think of when you hear the word pensions? Do you see pensions as smart, savvy and primed for innovation? Or something best left to the pensioners?
Most likely the latter – but with the decline of final-salary pension schemes, combined with the rise in pension flexibilities and member choice, it is increasingly important that we think about pensions early and often in order to ensure we aren’t met with a nasty surprise when we want to retire.
Industries such as banking have increased consumer engagement by piloting various new fintech projects – using technology to increase the ease and efficiency of managing finances. However, despite representing a significant proportion of the UK’s financial market, the pensions industry has been relatively slow to embrace fintech – to the detriment of both the providers and members.
Admittedly, pensions is not the easiest market in which to introduce technological change. Inevitably, there’s a tension between innovation and member protection.
Big insurance firms have acknowledged the difficulties that their size, and regulatory constraints, can cause when rolling out products. Providers are now catering for multiple generations of pension savers at the same time, and what is needed to encourage young people to start thinking about their retirement and saving for the future does not necessarily reflect the needs of those actually approaching retirement.
The difficulties in marrying fintech and pensions have been seen by a start-up which provides an online pension plan to combine a customer’s existing pensions into a single pot which is then manageable via mobile app. These plans are intended to be quick to set up and painless to operate, but the start-up claims to have had difficulties securing the cooperation of more established firms, experiencing significant delays when its customers have requested transfers from their existing plans with large companies.
In a bid to increase engagement with pensions, the government has partnered with the Association of British Insurers and key pensions providers to launch the Pensions Dashboard. The Dashboard aims to solve the problem faced by those who accumulate multiple small pensions over a working lifetime, ending up with various pots which are difficult to keep track of, let alone manage. According to government estimates, £400 million will be left unclaimed at retirement.
The Pensions Dashboard is a user interface which will list a user’s pension pots and expected monthly income at retirement in one place. It will show the state pension, and any workplace or personal pensions. Rather than storing the data centrally, a user will automatically request the information from the various providers each time they logon securely to any one provider’s portal. Using a common security and information service, each provider will allow access to up to date figures through their own dashboard.
Equivalent systems in Australia, Sweden and the Netherlands show the UK Pensions Dashboard is possible, and a prototype is now being tested. The Pensions Dashboard is expected to be made available to the public in 2019.
I see the challenges of creating a framework which balances the desired simplicity with adequate protection of member data, but the major providers on board now need to meet these challenges to create the products their industry, and today’s pension savers, need. Failing to engage with fintech is not an option for any of us in the pensions industry.
Margaret Meehan is a partner at Burness Paull’s pensions team