Viva la pensions revolution – the UK pensions and retirement market

I haven’t touched much on the pensions and retirement market in this blog, which is in some ways surprising. It turns out that a few months outside the office stimulate ideas and thoughts that are more clearly away from the nuts and bolts of running a pension scheme.

There are some crucial points which I believe can make or brake success stories for this market.

Wake up and smell the opportunity

It still impresses me the massive market opportunity for so many product and service providers around Pensions and Retirement Planning. Let’s do a flash-recap:

> Auto-enrolment kicks off in 2012. 1.3 million employers are affected, and over 5 million new pension savers already auto-enrolled into a pension scheme – with more to come until 2017

> “Pensions revolution” kicks off in 2015. Since then, savers in direct contribution schemes (the vast majority) are able to access their entire pension pot from age 55

> More big changes to be announced soon, including the very likely scrapping of the 25% tax-free lump sum

Leaving aside judgements of how good/bad each of these changes is, what cannot be contested is that this is an unprecedented shake-up of a multi-billion market in the UK.

It affects pension providers, annuity providers, asset and investment managers,  financial advisors, fund supermarkets and other non-advised channels, but also many many other FS providers and professionals including business administration and accountancy, to mention just a few.

Obviously, it also affects – immensely – consumers and pretty much any person living and working in the UK.

Lest us forget, these changes happen in a particular context and for very serious reasons. We are living longer; Europe’s population is getting older, and an economy that has been good in delivering unprecedented growth and wealth for a few lucky shareholders is not holding it together for the masses, particularly for the long term and when the masses will need it the most. (And by masses I really mean the 99%.) Market bubbles, growth slowdown, too much consumption and not enough saving, make this a huge market challenge overall.

Can the market actually deliver against our growing needs? Initiatives like auto-enrolment seem to indicate that it can, but much more needs to be done.

With such extensive changes, mounting consumer needs and a market of this scale, it’s the ideal time for market challengers to come to the fore. Smaller firm sizes, leaner structures and more flexible approaches can – should – make better use of insight and innovation to explore new services and opportunities.

So the first step is simply… to acknowledge this massive opportunity.

Believe it or not, I haven’t seen enough firms putting the resource behind at this crucial time. It’s the right time to develop new customer insight; to explore new product and service solutions; and to develop new tools to help millions of people in the B2C and B2B pension & retirement planning markets.

Boring and complex? Nah, just rise up to the challenge of good digital products and customer service

When we talk about products and services aimed at generating enough income for retirement, we have a really hard time making it palatable for a non-specialist.

I mean, as a consumer, particularly if you are a young consumer: do you really want  to be choosing a pensions or retirement product now? I would say it’s probably the least exciting, least pleasant buy you can think of, leaving aside perhaps writing your own will or browsing some cool coffins.

But it will make such a difference to start early, and to make good choices, that no society can afford to leave it to consumers alone to take action.

Pensions and retirement planning are boring not only because they deal with a more or less distant future that no one wants to think about, or because they are underlined by incredibly difficult and complex investment management concepts. If that was the case, then people would also largely avoid current bank accounts.

Pensions and retirement planning are boring because the industry is dominated by old-fashioned behemoths that haven’t managed to use technology and big data to make it easier and more pleasant for the average person to engage, select between meaningful options, and take action.

They can treat customers like this because everyone else does.

Although responsibility to provide for the future has  been transferred from the state and collective arrangements to individuals, there is (still) no quality free market catering for the needs of the vast majority.

While some changes can only be implemented by regulation – like the compulsion to start contributing into a workplace pension scheme brought by auto-enrolment -, others could be driven by private initiative from providers. This requires new product development and good customer service.

A new pensions revolution – using marketing best practice and behavioural science

Cherish that thought for a moment – new product development and good customer service for everyone in the pensions and retirement market.

Pensions and retirement planning are difficult for consumers because it’s a complex underlying buy; because it’s difficult to translate the different elements into meaningful options and language; because there is no immediate feedback of what makes a good or bad choice; because it deals with very delayed gratification, that anti-climax of consumption.

However, these are all things that behavioural science, costumer insight and marketing best practice can deal with:

– helping people to plan and getting down to doing what they want for the long run, bridging the usual gap between intention and action

– setting good defaults and social proofs to signal what everyone else is doing

– distilling relevant options into suitable language

– designing intuitive interfaces that work on most devices (smartphones, tablets, laptops)

– designing good choice architecture and adding well-thought context to help people make decisions about stuff they don’t have much information about

– working around irrationality and common biases that prevent consumers from doing good choices; and also dealing with choice overload effectively!

– taking into account mental accounting principles, self-control issues, and how consumption of a product and service changes as a function of how we pay for that product/service

– doing lots of experiments, A/B testing and using analytics to optimise performance and outcomes

Beware of Amazon pensions but not of good Fintech solutions

I came recently across a news piece suggesting that the Department for Work and Pensions was hiring an ex-Amazon executive because they were planning to get a new Amazon-style pensions.

Before that happens, how about if some responsible, taxpaying, Fintech providers got together to do a new pensions & retirement revolution?

We would all thank them for it.