Unleashing retirement technology
Vaughan JenkinsBusiness Development DirectorMoneyhubFind me on LinkedIn
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Two major pension policies this millennium couldn’t be more different. Automatic enrolment enabled pension members to relax without a decision to make. The equivalent of Tesla’s Autopilot system. With Pension Freedoms, we’re back driving an Austin Metro, with no power steering. All the decision and risks rest with the member.
The overthrow of the supposed tyranny of annuities came as a shock to pension providers. As choice came in opposition to compulsion, retirees with even modest pension pots were faced with a bewildering set of options and only limited support from the Pension Wise guidance service.
Seven years on, just 14% of those accessing their defined contribution pots do so following guidance from Pension Wise [1]. The Pensions Policy Institute predicted that 700,000 people reaching the State Pension Age over a period of 10-15 years (12% of the total) will be at “high risk” of making poor decisions when they retire. A further 1.6 million (29% of the total) are estimated to be at “medium risk” of making poor decisions [2].
Even with stronger nudges towards Pension Wise, there’s a serious gap in the provision of guidance and advice. Technology can help bridge this gap.
The mass market requires a digital pension revolution – and we believe Open Finance will help this be fully unleashed.
Retirement income technology for the massesSmall pension pots have tended to result in isolated decisions; whereas a better outcome may have been achieved by taking a full financial position into account. The ability to aggregate online accounts – from bank accounts to corporate pensions – represents a potential sea change in the technology required to support consumers and automate better outcomes.
Open Banking already provides an effective way for consumers to understand, track and change their finances with the added benefit of being able to sweep cash to savings. The best solutions go further by adding assets, properties, investments and pensions into a single picture and to project future cashflows and retirement income needs.
Open Finance (the evolution of Open Banking) platforms deliver a basis for self-directed users to assess different contribution and asset allocation options – considering affordability today and lifestyle outcomes in later life. Benchmarking outcomes against a current lifestyle and using the PLSA retirement living standards to reverse engineer retirement savings needs is one key benefit. Helping customers to engage with lost pensions is another. Moneyhub, for instance, can prompt a user to connect their LinkedIn profile to help find pensions from their career history.
Pension Dashboards will assist with completing the picture. But it will inevitably be challenging for users to interpret results and understand what they can do next. Digital onward customer journeys to consider consolidation, contributions, risk and investment choices will complement the narrow Dashboard dataset.
Looking ahead - Open Finance and retirement incomeHelping people access and manage their pension in retirement is where Open Finance is really going to show its worth.
Open Banking can track actual income and expenditure against pension drawdown amounts. Withdrawals can be throttled according to need and may help the user stay invested for longer. This will help providers to meet their Consumer Duty obligations in terms of suitability.
Technology can also support vulnerability checks – changes in circumstances, identifying unusual patterns of behaviour and out-of-the-ordinary transactions. With appropriate consent, spending and drawdown withdrawals can be monitored holistically by an adviser or relatives of a potentially vulnerable customer.
A sit-back-and-relax retirement?It’s a short step from there to an autopilot for managing your finances in retirement. Open Finance platforms have the power to monitor the vital financial signs and create alerts, nudges and notifications for the user to manually course correct or use programmed rules to adjust income and expenditure. In turn, this reflects the flow from active retirement through to changing care needs and legacy planning.
Pension account automation will increasingly support mass market customers to make better decisions and create better outcomes. Despite $100 billion being spent on autonomous transportation, perhaps autonomous retirement income vehicles could still be first to market.