I have been publishing sections of my long response to the FCA and TPR’s call for input on the pensions consumer journey. We started by looking at the pension consumer journey asking whether simplifying and standardising it made sense and since then we have been looking at the problems pensions give people and the difficulties people have with them – typically the sense of failure the pensions industry heaps on savers and the complexity of decision making we offer people at retirement.
But I am optimistic that we can help people to better understand their retirement saving and make them proud not ashamed of it. I think we can simplify choice at retirement by offering a default option and I believe the secret to getting these things right is to follow the data we hold on people’s pension saving and use that data to make matters easier for non-pension-experts!
The CFI now turns to how the pensions industry can better engage members.
What data do you use to monitor and improve engagement by different cohorts of consumers? How can we encourage the pensions industry to use behavioural insights and biases to engage consumers?
The monitoring of engagement by Government seems principally concerned with the take-up of Pension Wise interviews, this should be the secondary measure, we should be looking at
- Improvements or falls in the savings rate.
- Aggregation of savings into “one big pot”
- Appropriate use of investment pathways (and CDC)
In terms of outcomes this is what matters, the visit to Pensions Wise may or may not help in doing these three things well.
Moving on to the second part of this question, we should learn from other industries and sectors within financial services how to get people’s attention and keep it. But I will say at outset that a goal to engage everyone is not realistic or even helpful, many people simply want a set and go pension strategy which takes money from their pay and provides them with a wage in later age.
This is an area of particular interest to me as CEO of AgeWage. I am concerned that people and employers spend a high proportion of the wage bill on later life benefits through payroll deductions. In addition, many people have made conscious decisions to save into pension policies voluntarily – typically with the help of an adviser but sometimes on a non-advised basis (stakeholder pensions being an example of a simple product that could be purchased without the need of advice).
The expectation from this sacrifice was that there would be jam tomorrow and people generally trusted advisers or their pension provider to meet expectations which were created at the point of sale. One of these expectations was people could manage their pension rights by themselves – this is what personal pensions promise.
But these personal pensions are not meeting the promise, many pension pots are lost and those that are accessible are not providing information that people need or indeed expect. People cannot readily see what their pension entitlements are from their savings nor can they see how successful the pension plans they took out , have been. Indeed most people are in the dark about what they saved into , who managed their money and to what effect.
The pensions industry is determined to demand more money from such people but people are reluctant to commit in terms of money or engagement unless they have better management information about the past. When asking about past performance, people are often told that the past is no guide to the future and fobbed off with a fact sheet which may say how a fund has done but does not tell someone how their pension plan has done.
The idea of providing people with the value they have got for their money is regarded as financial heresy. I remember sitting in a room of senior IFAs and asking what benchmarking was being disclosed to clients, one participant in the discussion said that he had given up on client outcomes because they always seem to be below expectations. This appears to be behind the problem with showing people data which tells them how they actually did and is a major source of distrust between consumers and the financial services industry.
I cannot think of any other business sector that considers itself so unaccountable for client outcomes as in personal investment – and pensions investment is no exception.
In response to the question posed by the CFI, I firmly believe that a standardised statement of future benefits coupled with clear information on progress to date, is all that most people need by way of reporting on their pension savings. Delivering this in a simple way that everyone can understand should be no more difficult than in other areas of personal finance (credit ratings for instance).
Credit ratings are accessible online and take into account a wide range of factors relating to an individual circumstances though the open finance initiative. But we seem incapable of replicating that same transparency when it comes to savings.