Can Fintech increase pension engagement and save our retirement crisis?

What role does technology play in boosting workplace pension engagement and driving better financial outcomes?

It is widely recognised that Auto-enrolment (AE) has had a positive impact on helping employees save into a pension. A recent CBI paper; “Engaging with saving: CBI/AEGON guide to pension engagement” (2018) highlights how critical pension engagement is, in securing a good return on the pension investment made by employers through Auto-enrolment.

The report shines a light on business leaders’ attitude towards government raises in minimum contribution levels against increasing pension engagement through technology solutions to reach better outcomes for both employer and employees.

While businesses are contributing billions of pounds to workplace pensions (DWP estimates c￡133 billion will flow into workplace pensions in 19/20), the return on this investment has to be felt in tangible value which could include KPI’s such as staff retention, attraction and recruitment.

Improving the long-term financial prospects of employees is a long game for business strategy and “wellness” is just part of the picture. An interesting statistic from the same report indicates the journey is still in its infancy;

“Only 12% of employers who participated in our research were happy with how engaged their workforce was with pensions.”

So why are we not engaged?

To get to nub of this we need to focus on the main barriers to engagement quoted as;

· low levels of financial awareness amongst employees

· difficulty in communicating with staff about their pensions.

While there is endorsement from some businesses to implement a strategy to overcome these barriers, there is of course a willingness required from employees to improve their understanding and increase their chances of a better financial future.

The survey conducted by the CBI identifies that while engagement is low, employee pension engagement is more than a “nice to have”, with 55% of firms believing greater employee engagement with pensions will improve their ability to recruit, retain and succession plan more effectively. I can see that, an employer attracts through the benefit and with better insight over retirement plans, a business can plan more effectively.

So, the industry clearly sees the value in increasing pension engagement. However, there is much more work to be done before we see all businesses placing a higher value on worker engagement with their largest and most expensive employee benefit offer. Low levels of financial awareness stem from a culture of mis-understood and complicated communication around pensions which has led to entire workforces (and I include some HR in this), dis-engaging and pegging back innovative ways to communicate when it comes to pensions. “Don’t understand, not spoken about and not impacting my today, so not a priority, not my real problem and maybe the schemes should do something about it..”.

Regulators are taking note of their role in ensuring a more visible framework (and in some ways culture) around the question of “who’s problem is it?”, starts to be distributed a little more evenly. I recently attended an evening dinner hosted by the Society of Pension Professionals where the themes for the evening all evidenced, to me, a clear push for Schemes to be providing the tools to members to help get this moving and take the steps towards standardising the metrics around provision of “value for money” across the industry.

Switching the focus onto communication. Impersonal, infrequent and in some cases still on bits of paper, annually. We have seen such dramatic changes with digital communication across financial services, yet the workplace pension seems to have lagged behind the disruption.

According to PwC’s Technology in Pensions Survey, Significant numbers of pension schemes will invest in new pensions technology over the next three years: 61% expect to invest in tools that give members greater online access to their pensions. The tide appears to be turning.

How does pension technology help?

Pension technology must play its part in improving communication, engagement and ultimately better financial outcomes for members and employees. Employers and employees both agree that technology can help lower barriers to increased engagement. Younger generations are driving a demand for digital solutions to engagement vs traditional methods such as annual post. Many businesses are still playing catch up with even the offer of a digital portal to view pension information.

While there is an upwards pressure from younger workers on their employers to provide technology solutions to help engagement, and promote better access, it seems the issue has been implementing these solutions. It’s no wonder that businesses find that the most dis-engaged with their workplace pensions are the youngest staff, yet these are the same staff members that engage with technology the highest and advocate greater transparency when it comes to employee benefits.

A bigger effort to implement technology solutions for communicating pension information in a simple (jargon free) and ideally interactive way will increase engagement, improve understanding and provide much needed support to employees who are struggling to plan effectively.

We can see that pensions technology has been adopted by some companies keen to provide basic tools to employees. However, according to PwC’s Pension survey 2018, 15% of employees consider the current technology to offer very basic information and with little or no personalisation, which in turn leads to less engagement.

This comes in the face of 39% of the same employee population surveyed, confirming they do not currently have access to any sort of technology platform that provides access to information about their workplace pension or enables employees to manage their savings. Really?!

The options in such instances for employees seeking to improve their financial position lies in speaking to and paying for financial advice only.

With very little in the way of guidance, quite often, unless there is some saving to be made on the offer of advice, this is not taken up by the employee. The same survey concludes only 34% of employees are prepared to pay for financial advice. This has contributed to the widening of the “advice gap”.

Post AE, the value can flow both ways with the adoption of technology ensuring members are not just opted into a workplace savings or pension scheme but take that next step and convert a passive membership to valuable active engagement which demonstrably increases understanding and decision making when it comes to workplace pensions.

Pension Freedoms and the delivery of AE have driven the demand for more information and pensions data access. The role of business is key to ensuring pensions are fiscally sustainable over the long-term.

This requires a strong commitment to pensions from both Government and businesses. To this end there has been a demand for greater clarity from the Government on rules relating to advice and guidance to staff.

It is worth mentioning the FCA and The Pensions Regulator (TPR) joint strategy published this year speaks directly to the issue of money not being managed in line with people’s needs. The objective centres on the area of focus of consumer understanding and decision-making and to provide access for consumers to helpful information, guidance and advice that enables consumers to make well-informed decisions. You can read more on this here.

This regulatory upwind will be refreshing for innovators in the industry and should also spur existing solution providers to innovate and work toward helping people retire with adequate income.

So what does engagement through technology look like?

“People who are engaged with their workplace pensions are far more likely to understand their worth and thus, value them. Bringing about greater engagement with workplace pensions will lead to employees placing greater value on this benefit. And benefits that are valued boost motivation, productivity and commitment.”

A simple definition of pension engagement by Chris Buckley, former MD of Aegon.

The CBI engagement survey differentiated engagement into basic and pro-active;

“An engaged employee was understood to be one who displays a combination of behaviours including choosing to remain a member of the scheme — an indication of a basic level of engagement — and making proactive decisions around their participation in the scheme, based on a sound understanding of their pension. Examples of proactive behaviour include employees increasing or decreasing contributions, regularly monitoring their pension pots and changing their investment fund.”

Technology solutions provide the mechanism for employees to take pro-active decisions.

Taking a pro-active decision to improve your financial wellbeing relies on clear communication of information relating to the user. Today, there is limited access to portals or dashboards providing very basic data when it comes to workplace pensions. The dashboards provided in workplaces often come with no real way to measure engagement and often be a tick-in the-box feature for the business. The Government is working on its Pension Finding Service and while this is now being delayed from its expected delivery in 2019 I think is a step in the right direction and reflects the desire at the Government level to address a widening gap between people and their pots.

I am pleased to see this trend shifting to businesses wanting to ensure employees can access and understand their workplace pensions.

The journey often starts with improving basic financial awareness through having more dialogue and clear tools to help employees visualise and define what their pension is and means to them. The value is then drawn back to the employer around benefits provision. For this to work, all aspects of the eco-system must play their part and I see Fintech's providing a valuable route to enabling some of the challenges the incumbents and gatekeepers currently face.

Standardising “value for money” across the industry is important if we are to engage members. What does good look like. Relationships with money are emotional and a happy retirement is the desired outcome here.

The positive wind blowing behind this pension engagement revolution. Fintech solutions are starting to surface and now scale.

At the Pension Lab we have been working on delivering an interactive financial management platform specifically for employees to engage with their pensions.

This is a first step to changing a culture in which pension became a word which scares people to one which engages every person, with their own story and journey. Financial education sits at the root of a better future for the UK’s retirees. We want to be part of that.

Sanjay Champaneria

The Pension Lab

*Ref: PwCTechnology Survey, L&V https://www.lv.com/pensions-retirement/state-of-retirement-chapter-1, NEST figures for 2018 (92%) down from 99% in 2013 https://www.nestinsight.org.uk/wp-content/uploads/2018/06/How-the-UK-Saves.pdf https://www.professionalpensions.com/news/2285398/nest-members-default-fund