Need to know
Pensions technology was thrust into the limelight following the announcement of the pension freedoms in the 2014 Budget, with employers and trustees demanding to know how their pensions systems could be evolved to support employees’ retirement plans.
The freedoms saw the removal of compulsory annuitisation at retirement with effect from April 2015, which means that pension scheme members can now take their pension when and how they want at retirement, be that in the form of drawdown in full or in phases on an ad-hoc basis, with up to 25% being tax-free, or by buying an annuity.
One of the ways in which industry responded to the freedoms was by offering additional online functionality, such as self-service tools. For example, Aegon introduced self-service functionality through its pensions portal from April 2015, enabling members of its pension schemes to manage and draw down their pensions online.
Standard Life saw almost 10,000 of more than half-a-million pension scheme members take their pension benefits online during 2015. Jamie Jenkins, head of pensions strategy at Standard Life, says: “We wanted members to have the ability to look at their retirement options, make their own decisions, do their own thing and self-serve, but equally [we introduced the feature] because it’s more efficient [for us as a business].”
However, the pensions industry must work harder in the future to support employees at, or nearing, retirement, says Paul Waters, partner, workplace savings solutions, at Hymans Robertson. “There’s loads of good pensions technology out there, but the majority of it requires members to really engage and use the tools and become an expert [in pensions savings],” he says.
Pensions technology needs to evolve to enable and support employees not just to engage in their retirement planning, but also to take action when and where required, to ensure that they achieve their desired savings outcomes, he adds.
Automation is key to the future success of pensions technology. Paul Sturgess, director, pension administration and strategy, at Equiniti, says: “The online representation of a pension scheme is only as good as the levels of automation within an underlying system,” he says.
This is being employed by organisations such as Mercer, which uses automation in the video series it produces. The series, which is designed to nudge employees into actively managing their retirement plans, contains personalised content, which means that each video addresses employees by name and talks to them in the context of their respective pension plan. Clickable links are embedded within each video, which take employees through to, for example, a dashboard displaying their current pension plan in full and allow them to, say, change their contribution payments.
Mark Rowlands, head of [defined contribution] DC services for the UK DC and financial wellness team at Mercer, says: “Video is effectively an emotional nudge that creates an emotional and personalised connection, and it removes the gap between good intention and action because employees can actually take action when they receive the video.”
For example, by increasing their contribution rates, employees can change their approach to saving and build up their retirement income.
Through the use of data and analytics, employees will have access to a more personal benefits experience in the future, including around their workplace pension. “Data, insight, and action will become the mantra that drives benefit design and communication,” says Rowlands. “The benefits and reward world will look very different in 24 months’ time.”
Showing the bigger picture
The launch of HM Treasury’s Pensions Dashboard is also hoped to further encourage employees to actively engage in, and save more for, their retirement plans. A prototype of the Pensions Dashboard, which is being designed to enable pension scheme members to view all of their DC pension pots in one place, is expected to launch by March 2017.
But the technology needs to show all of employees’ savings vehicles to be effective, says Mercer’s Rowlands. These may include individual savings accounts (Isas), the new lifetime Isa (Lisa) and other sources of income, such as buy-to-let property.
“Employees need to be able to look at all their pension pots and all the state benefits that they have got access to, but even that’s not enough,” adds Rowlands. “What’s important is that [everyone] stops thinking [in terms of just a] pension and starts thinking about savings. We need to get away from this bubble that the pensions industry has worked in and think about [the issue] more holistically.”
Investment in technology
In the meantime, the growth of DC pension fund assets together with new product development, such as the Lisa, will help to encourage further investment in pensions technology. It just needs the industry to circumnavigate the challenges of competing commercial interests among pension providers around collaboration for projects such as the Pensions Dashboard, and data consolidation, particularly given the task of data extraction from old-fashioned pensions providers.
“If the Pensions Dashboard can be nailed and delivered in a way that lets the whole pensions community leverage the tehnology solutions [used], then that will be a driver to adapt technology and make it much more relevant for [employees to use],” says Hymans Robertson’s Waters.
Scottish Power uses technology to keep employees’ retirement plans on track
Scottish Power’s UK pensions manager, Anne Harris, is keen to keep up with advances in pension technology to ensure that employees’ retirement plans are on track. She says: “Pensions are becoming more and more complicated, so employees are becoming switched off.
“It’s vital that our stakeholder pension scheme members are saving enough for their retirement, so we’re using technology to deliver something that’s very simple.
“Members don’t want to know the complexity [behind the technology], they just want to know whether they’re on target or not [for achieving their desired income in retirement].”
The energy group uses Hymans Robertson’s Guided Outcomes technology to support the 2,600 members in its stakeholder pension scheme, which is invested by Fidelity International, and which runs alongside two existing defined benefit (DB) pension schemes. Of the employer’s 6,500-strong UK workforce, just 200 members are not covered by any of its three pension schemes.
Stakeholder scheme members can use a modelling tool, which is based on a red, amber and green traffic-light system, to check that they are on track to achieve their desired income in retirement. If not, they see an amber or red status symbol and are guided to take actions that would get their plan back on track, such as increase their scheme contribution rate.
Employees in the stakeholder plan are typically allowed to contribute 3%, 4% or 5% and Scottish Power will match these rates up to a maximum of 10%. But to support employees using the technology, Scottish Power is allowing employees to increase their contribution rate by just 2% each year until they achieve a green status, which means that their retirement plan is on track.
Viewpoint: The Pensions Dashboard gives digital makeover to retirement savings
The long-term savings industry has been arguably slow to embrace the digital revolution. As a long-term product with low levels of engagement, while progress has been made, the savings industry has not fully embraced the possibilities of digital technology.
The Pensions Dashboard, the widely discussed current technological development in pensions, is designed to enable people to see all their pension savings in one place online. Given that people are forecast to have 11 different jobs during their working life, the Pensions Dashboard is a critical piece of infrastructure to empower customers and help them save for retirement.
By giving customers a complete overview of their pension savings, a Pensions Dashboard can help tackle under-saving, help people locate lost pension pots, and inform their decisions on retirement planning. A range of organisations, including employee benefits firms, could use the data to help engage savers.
In September 2016, Simon Kirby MP, economic secretary to the Treasury, announced the next phase of the project to make the Pensions Dashboard a reality. The Association of British Insurers (ABI) will be managing a project to develop a prototype dashboard, to test how a saver could use a digital identity to access real but anonymised data about their defined contribution (DC), defined benefit (DB) and state pension entitlements. This is a significant step forward in opening pensions data to help savers see and understand their various pension pots.
The ABI-led cross-industry group will be reporting to HM Treasury who will oversee the project following their commitment to launch a Pensions Dashboard by 2019. A range of firms has agreed to join the project group, including insurers, master trusts, administrators and a large employer scheme.
Given the diversity of pension provision, we know we cannot do this alone. We are welcoming government and the support of the industry in its widest sense to deliver the dashboard for the benefit of savers facing an increasing retirement.
Rob Yuille is head of retirement policy at the Association of British Insurers