Against the backdrop of the pandemic, there have been tectonic shifts in social trends with new working patterns, the rapid acceleration of digitalisation and changing attitudes in all areas of life. In a world shaped by evolving customer expectations, technological innovation and continuous regulatory change, it’s now time for the pensions industry to harness innovations, navigate the new social landscape and meet the growing demands of pension savers.
Future of work
Over the past few years, the world of work has been revolutionised. Our relationship to work has shifted and we have a growing desire to work smarter with more flexibility as we try to free up more time to enjoy life outside of work. Employers and employees have a greater need to have more flexibility in how they communicate and interact with each other. Fewer roles dictate location-specific requirements, with many of us now working from home and enjoying the benefits of hybrid working. Self-employment is also on the rise with the reinvigoration of the Gig Economy. This has all been enabled by the acceleration in the adoption of digital technology, which has hugely influenced our behaviour, attitudes and expectations. People increasingly expect rapid, seamless, easy access to information as well as personalised experiences. This is especially true when it comes to dealing with financial services and all aspects of our financial life.
In addition, there are now five generations currently active in today’s workforce. The differences in attitudes, life-stages and digital experience is something that needs to be addressed. Gen Z are predicted to have on average 5 to 7 careers. There is clearly no one-size-fits-all approach to what today’s workforce are looking for when it comes to their pension planning. It’s a very real challenge for providers to address the needs of their changing member base, to meet the different demands across different generations, all with a diverse range of needs, digital experience and expectations. Some want to completely self-serve with no human contact, while others want the reassurance of being guided by a real person.
The last few years have without a doubt emphasised the need for strengthened financial resilience across demographics, as people begin to prepare for an uncertain future, not just a rainy day. The pandemic has definitely highlighted the importance of technology in democratising finance, including pensions.
With the uncertain economic environment created by the pandemic, there is a growing disparity between the ‘haves’ and ‘have nots’, across industries, age groups and income groups. Mid to high income households have generally increased their savings, but at the lower income levels there is a growing deficit. A large proportion of the UK’s population has limited capacity to save long-term, in part due to real earnings being flat over the past decade along with an increase in unsecured consumer debt. This is all compounded by the recent hike in energy costs and the ever-increasing overall cost of living.
Another factor is the increasingly aging population, with a growing percentage of the population over 60, with the old age dependency ratio increasing (OADR, the number of people over the age of 65 for every 1,000 people aged between 16 and 64). Longer life expectancy alongside the devaluation of savings due to inflation are significant problems for this age group. A YouGov poll with Smart Pension found more than one million 55 to 64 year olds are now set to delay their retirement due to the pandemic. The prospect of future retirees with potentially insufficient assets or savings to meet the expensive costs of later life will inevitably result in significant societal challenges.
The younger generations have typically been reticent to engage with pensions, but we are starting to see a shift in attitudes with the increasing access to financial literature and digital technology. The interest in crypto and robo-advice platforms are amplifying the way in which younger generations interact and engage with their finances. Recent research conducted by Sopra Steria also indicated that pension provision was a key factor for the younger population when considering employment opportunities. There’s also a shift in how millennials and Gen Z view the social impact of their pensions and investments as they become more conscious in considering where their wealth is invested and who is being impacted. Sustainable investment options alongside wider social value considerations are higher on the agenda than they have been previously, both for savers and pension providers.
From complexity to clarity
The pensions market has been steeped in tradition and is renowned for being weighed down by complex legislation and regulation. This has impacted the way in which pension providers communicate with their members. Often using archaic methods, using confusing terminology resulting in frustration and disengagement. This compounds the issue around trust which must be addressed as we move the industry forward.
Many systems which are currently in place were designed to enable back-office teams to perform their administration and operation tasks. These legacy platforms are struggling to meet the needs of users who now expect to be able to do much of this activity themselves. There is now a pressing need to improve the customer experience in a sector that lags behind many others in putting the customer first. Transformation will deliver benefits and improved outcomes for providers too, if done correctly. Creating services that engage and empower members will also lead to more efficient and effective services with much reduced traditional back-office requirements, improved satisfaction and an opportunity to improve margins.
The challenge of ensuring pension services remain compliant in an ever-changing legislative and regulatory landscape, is more easily achieved through digital transformation. This is because continual improvement is ‘built-in’, which ensures changing legislative requirements can be accommodated as changes arise, so incorporating rulings such as GMP Equalisation, McCloud and Goodwin, can be achieved in a more efficient and timely way.
The complexity around pensions will remain, but we can make a real change around the way we educate, inform and provide clarity to support decision making. Communication has never been more important. Meeting the growing demand for accurate real-time data and information, both from the pension savers, but also from administrators, is at the heart of any meaningful transformation.
Enablers for the future
The future of pensions services has to be founded on a truly digital business. For this to become a reality the starting point is to establish a digital first DNA in the company providing the services. This will create a strategy and culture within the business that is focused on improving member and employer experience and leveraging digital to its full potential. This needs to come from the very top of the leadership team and be embedded in the ways of working throughout the business. The core enablers for digital transformation to be realised include:
#1 Innovation. The pace of technological change in the financial services sector is accelerating and has changed the way customers interact with businesses in almost every sector. Automation and artificial intelligence brings huge potential and offers an opportunity to enhance efficiency, reduce complexity and improve the user experience including real service personalisation and encouraging engagement with the service. With many options to consider, key technical principles such as the use of cloud native and micro services, will be key to create flexibility and integration.
#2 User centric design. Optimising engagement and meeting the demands of pension scheme members is dependent on user centric design. Making use of visualisation tools around retirement, using straightforward language and creating easy to understand education around pensions are all important elements, along with creating channel options for how members and administrators engage with the provider. Creating more personalised services based on those moments that matter in retirement planning and encouraging or rewarding engagement with the service should also be considered.
#3 Insights & Advanced analytics. Data quality and accuracy is a core foundation of any pension service. Data is key to informing decisions for providers, highlighting gaps and opportunities to improve their service and meet the changing demands of their members. Technology has the power to provide meaningful insights and has the potential to revolutionise the way we engage with our pension allowing providers to help employers understand challenges that may exist and build strategies to address topics such as a lack of engagement, understanding vulnerabilities and the financial wellbeing status of members.
#4 Hybrid models. Servicing customer needs in the digital age is one of the biggest challenges. It’s suggested that robo-advice and hybrid digital-human models are increasingly becoming the preferred engagement model for a large proportion of UK customers. These new approaches to servicing customers will require employees with different skills, with more administrative tasks undertaken by technology whilst employees are focused on higher value activities augmented by greater data and customer insight supplied by digital models. Taking your workforce through this journey will not be an easy task with new skillsets required.
The future starts now
The scale of the transformation still to come is significant. Today’s pension providers are re-examining their approach to meeting the changes in consumer needs and expectations. The future of the pensions sector will require long-term financial investment, an innovative mindset and a willingness to work in collaboration with consumers and policymakers to improve outcomes for customers as society’s demands evolve. Will the current providers be able to transform themselves? The answer is likely to be that some will, and some will not. As we have seen with other areas in financial services new names and providers are already emerging. For those new providers who are digital by default and able to start without the legacy issues and technical debt, their challenge will be a different one as it will be about convincing employers, pension managers and users that their brand is a trusted and attractive one. Challenger banks are a great comparison.
At Sopra Steria, we help our clients provide high quality and efficient pension services, with a focus on improving both the member and employer experience by putting innovation into action through digital transformation. By optimising the use of digital technologies, our aim is to help members engage with their pension service, allowing them to make fully informed decisions to support their retirement goals. This also enables us to support clients in developing data-driven strategies which drives real change for their members, partners, teams and the wider pensions industry.