Pensions need disrupting
My view is that the current pensions industry is boring, opaque and may not always operate in the best interests of scheme members. Tesla’s disruption of the car industry is well documented and it has made me wonder what would happen if Tesla tried to disrupt the pension industry. So below are a few thoughts on how I think Tesla Pensions might look.
1. Paper and Jargon free
The Tesla Model 3 doesn’t even have a car key. If a car can be sold without a key then a pension can be sold without paper, this will achieve higher levels of engagement. The extensive paperwork full of caveats, jargon and lengthy explanations is causing people to switch off from pensions. We need technology solutions (eg apps and digital signatures) to make pensions more integrated into daily life.
It is also very obvious that pensions need to be jargon free. Elon Musk demonstrated his emotion towards jargon by effectively banning acronyms from SpaceX (unless he approved them). If the rocket scientists at SpaceX can communicate with each other without using jargon then pensions can definitely can manage without them.
Pensions create an image of being too old to work and counting down to death. So being playful is helpful in breaking down this image. Tesla cars are famously playful, a great example of this is Ludicrous Mode which results in the following warning…
So what could the Ludicrous Mode for pensions be? Maybe it’s something like this…
This is a way of breaking down the boring image of pensions while still be cautious and caveating.
3. Artificial Intelligence
Tesla’s autopilot system is a great use of AI. But what would AI look like in pensions. At Abaka we see AI as a powerful tool to listen, learn from and educate employees to improve financial wellbeing. The AI allows employees to effortlessly link all of their pensions, savings and current accounts into one holistic dashboard and Abaka’s Virtual Advisor (AVA) can then guide individuals through natural language conversation to improve financial wellbeing.
4. Always improving
Linked to the benefits of AI, is constant iteration and improvements. This is something I have also witnessed at Abaka, the data collected from users, combined with expertise in behavioural science, neuro-linguistic programming, data science etc means it is now possible for there to be a never-ending pursuit of perfection – resulting in services and user experience getting better every day.
Tesla have a famous example of this from a tweet to Elon Musk (at 12.47am) suggesting an improvement to automatically move the seat back and lift the steering wheel once parked, this resulted in a response from Elon Musk less than half an hour later agreeing to make this improvement at the next update. This sort of iteration in the pensions industry would be a dramatic change compared to current standards.
My favourite explanation of BlockChain is from Don Tapscott
To me, Blockchain is like the autonomous driving of the pensions industry. All the technology exists for self driving cars (Tesla’s autopilot being a great example) but we are just waiting for the legislation, insurance and Technology solutions to come to market for the real potential to be fulfilled. This is similar for Blockchain and pensions. The technology exists, (most notably with Bitcoin) we are just waiting for products, legislation etc to catch up and I think this can’t happen soon enough.
Given a lot of people think their pension fund only has one charge (the Annual Management Charge), the research on pension fund fees is quite shocking. In practice there could me more like 300+ different charges in a typical pension scheme (source: Transparency Task Force) and one report (Investment Costs an Unknown Quantity) concluded it was not possible to know, with any accuracy, the true costs of pension schemes. I think the current pension system with its many intermediaries, all with different commercial objectives and all taking their fees directly from the members’ funds is to blame for this opacity.
The centralised ledger of a Blockchain pension system could remove the need for so many intermediaries and create a system with transparency and oversight of exactly what assets the pension contributions are purchasing and how much is being spent on fees. Removing some of the frictional costs in pensions could easily improve pension pots by 30-40% and creating a pension system around Blockchain could create the opportunity to redefine pensions.
Bringing it all together
Although Tesla may not have plans to enter the pension provider market, given there are $40+ trillion dollars of pension assets globally and the industry has many layers and institutions, which may not be entirely focused on member needs, it’s not unfeasible that a large technology company may have its eye on entering the market.
The disruption Tesla has achieved in the auto industry may have been unforeseeable to many. However, I think potential disruption of the pensions industry is entirely foreseeable but rather that wait for one of the large technology companies to do this, the industry should push incumbents for: better use of technology, greater fee transparency and to focus more on member needs.
This blog is by Oliver Payne, Oliver talked it through at Employee Benefits Connect on February 27th.