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Alan Clay Head of Strategy, Customer Data Solutions, UK & Ireland LexisNexis® Risk Solutions
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Pensions: The digital dilemma
Only 12% of scheme members say they’re definitely saving enough for a comfortable retirement. Three times as many members (36%) say that they’re not saving enough to retire comfortably. Many more (49%) simply don’t know. The difference in members’ self-predicted retirement outcomes correlates with their levels of engagement with their pension pots. There is cause for hope. Members (particularly the under-pensioned) say they would engage more with their pension if they could access their pension digitally. However, the study revealed a standoff, with trustees appearing reluctant to invest in digital pension platforms for members because they’re not confident that members will engage. Pensions dashboards may break this deadlock by proving members’ appetite for digital, once and for all. The success of digital pensions rests on schemes having good quality, accurate member data. Trustees appear very confident in the quality of their data, yet member behaviour paints a contradictory picture. Moving to a digital platform could prove a cost-effective way for schemes to keep their common data up to date, and revolutionise the way under-pensioned members engage, leading to better retirement outcomes for all.
How do trustees ensure they meet the growing digital demands of members whilst continuing to focus on maximising scheme value?
There will always be reasons not to pay more into one’s pension – student debt, rent or mortgage payments, family and holidays to list a few – but with Defined Benefit schemes becoming increasingly rare, it’s vital that UK consumers make sufficient contributions to their pension to allow them to live, rather than simply exist, in retirement. The coming years promise significant change in the pensions industry, through digitalisation and the introduction of pensions dashboards, which aim to drive member engagement. Providing members with a value for their combined pension pot should help millions to better plan for retirement. Yet, it will still not offer a solution to those who have underfunded their pensions over a long period of time. Being open to all consumers, it is hoped that the dashboards will encourage more adults to take stock of their retirement position and take steps to close the gap on any potential shortfall. However, the effects will be negligible without a corresponding push for better pensions education, delivered digitally alongside dashboards. Pensions trustees face new challenges too, in ensuring data matching services can return quick and accurate information on each pension enquiry initiated via the dashboards. Here, the focus shifts to the completeness and accuracy of the data held by each scheme.
This timely study looks across multiple perspectives, from schemes and trustees, to members themselves, measuring consumer attitudes, current and future perspectives on engagement and contrasting views from trustees on how best to serve their members. We hope you find it insightful.
In Chapter One, we look at why the problem of inadequate retirement provision will only get worse if left unaddressed. Chapter Two reveals why financial education and digital pension access should be the cornerstones of any drive to improve member outcomes. Chapter Three examines the business case for investing in a digital pension platform, and separates fact from fiction in terms of members’ appetite for digitalisation. Our Final Chapter asks whether scheme common data is in a fit state to facilitate digital adoption, and how digitalisation offers a path to more effective data upkeep in the future.
The task of addressing the adequacy and security of pension savings will require strong action from government, trustees and pension providers, but our research gives cause for optimism. There will never be a better time to act on these issues than now. The retirees of the future depend on it.
49
%
of scheme members don't know if they're saving enough for a comfortable retirement
Select a chapter to explore
In this report
The UK pensions industry and its members, stand at a crucial juncture.
Almost a decade on from the introduction of automatic enrolment into workplace pension schemes, membership of pension funds has increased substantially. Yet, according to a new study by Professional Pensions and LexisNexis® Risk Solutions, many of these members are sitting on a timebomb, with only a fraction saving enough for a comfortable retirement. As the timebomb silently ticks down, administrators and trustees face mounting challenges of their own. Consumer demand for digital services is pushing a traditionally manual, paper-based industry to accelerate its plans for digital adoption, ahead of the national pensions dashboards coming online. Underpinning it all is the endless challenge of keeping member data in order. To stand still on these issues is to go backwards, which makes finding lasting solutions all the more important. Professional Pensions and LexisNexis® Risk Solutions have conducted a new and wide-ranging piece of research into these issues, taking in the views of UK scheme members, as well as pension scheme trustees.
This report is based on the results of a research project, conducted by Professional Pensions in association with LexisNexis Risk Solutions. The research comprised four in-depth interviews with a panel of pension trustees and pension technology specialists, and was followed by two major surveys. The first survey looked at pension-related attitudes and behaviours among a sample of 2,085 adults in the UK. This sample was weighted to be representative of the UK’s broader population. The second survey looked at the same attitudes and behaviours among a sample of 101 UK pension trustees who subscribe to Professional Pensions.
Methodology
Our findings make a strong case for the widespread adoption of digital pension platforms as a way to prevent a future financial catastrophe, and outline how the industry can act to facilitate its rollout:
If you ask people to describe their hopes for retirement, you will likely get a broad range of exciting and adventurous responses. Yet many retirees’ aspirations may be tempered by their ability to afford the retirement they dream of.
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Foreword
Introduction
Executive summary
• • • • • • •
Only 12% of scheme members say they’re definitely saving enough for a comfortable retirement. Three times as many members (36%) say that they’re not saving enough to retire comfortably. Many more (49%) simply don’t know. The difference in members’ self-predicted retirement outcomes correlates with their levels of engagement with their pension pots. There is cause for hope. Members (particularly the under-pensioned) say they would engage more with their pension if they could access their pension digitally.
• • •
However, the study revealed a standoff, with trustees appearing reluctant to invest in digital pension platforms for members because they’re not confident that members will engage. Pensions dashboards may break this deadlock by proving members’ appetite for digital, once and for all. The success of digital pensions rests on schemes having good quality, accurate member data. Trustees appear very confident in the quality of their data, yet member behaviour paints a contradictory picture. Moving to a digital platform could prove a cost-effective way for schemes to keep their common data up to date, and revolutionise the way under-pensioned members engage, leading to better retirement outcomes for all.
There will always be reasons not to pay more into one’s pension – student debt, rent or mortgage payments, family and holidays to list a few – but with Defined Benefit schemes becoming increasingly rare, it’s vital that UK consumers make sufficient contributions to their pension to allow them to live, rather than simply exist, in retirement. The coming years promise significant change in the pensions industry, through digitalisation and the introduction of pensions dashboards, which aim to drive member engagement. Providing members with a value for their combined pension pot should help millions to better plan for retirement. Yet, it will still not offer a solution to those who have underfunded their pensions over a long period of time. Being open to all consumers, it is hoped that the dashboards will encourage more adults to take stock of their retirement position and take steps to close the gap on any potential shortfall. However, the effects will be negligible without a corresponding push for better pensions education, delivered digitally alongside dashboards. Pensions trustees face new challenges too, in ensuring data matching services can return quick and accurate information on each pension enquiry initiated via the dashboards. Here, the focus shifts to the completeness and accuracy of the data held by each scheme. This timely study looks across multiple perspectives, from schemes and trustees, to members themselves, measuring consumer attitudes, current and future perspectives on engagement and contrasting views from trustees on how best to serve their members. We hope you find it insightful.
Fiduciary management users: Who, how, and why?
Chapter One
Paving the way to the endgame
Chapter Two
Deciding factors
Chapter Three
Types of fiduciary manager
Chapter Four
Looking to the future
Conclusion
Chapter One A pension timebomb
Automatic enrolment has massively boosted the UK’s pension savings. Introduced in 2012, the policy raised the level of pension participation to 88% of eligible employees – approximately 17 million people – by the end of 2020. However, despite the success, major gaps in coverage remain.
Our survey of over 2,000 UK adults found that 30% of people still aren’t enrolled in a pension scheme, and that the outlook is scarcely better for those who are. Only a small fraction of scheme members (12%) said they expect to have a comfortable retirement (in this report, we refer to this 12% as the “Haves”). Three times as many members (36%) don’t think they are saving enough (the “Have Nots”) to be comfortable in retirement. Equally concerning is that almost half of respondents (49%) either aren’t sure or don’t know whether they are saving adequately for a comfortable retirement.
I am definitely saving enough
I don't think I'm saving enough
Prefer not to say
Don't know
To what extent do you think you're currently saving enough for a comfortable retirement?
30
Percent (%)
20
10
0
40
50
60
Have Nots
Haves
DC scheme
DB scheme
Hybrid scheme
Other
1 Adding the rounding errors for “I’m saving what I can, but I’m not sure it’s enough” and “don’t know” creates a total of 49%
1
Our study found that the Haves were more likely to be members of a Defined Benefit (DB) scheme, at least for part of their working lives, giving them more certainty over their retirement income. Have Nots, on the other hand, tended to be members of Defined Contribution (DC) schemes.
Which pension schemes are you a member of?
70
Defined Contribution (DC) schemes are the fastest growing private sector retirement offering in the UK, facilitated by a number of leading providers such as NEST, NOW: Pensions and The People’s Pension. By association, we can infer that the number of Have Nots is also increasing at a similar rate. Unless the UK Government and the retirement industry take collective action to improve engagement with DC scheme members and educate savers on how to ensure a comfortable retirement income, the proportion of Have Nots will simply continue to grow, resulting in a huge shortfall in retirement savings for millions of people. The Have Nots’ future financial security rests on the ability of the pension industry, supported by the public sector, to convert as many of them as possible into Haves. A crucial part of this challenge will be addressing members’ desire to engage with their pension savings. In the next section, we will explore the differing stories told to us by the Haves and the Have Nots about engagement.
12
35
36
13
3
I'm saving what I can, but I'm not sure it's enough
37%
61%
6%
5%
53%
17%
2%
1%
32%
The Haves and the Have Nots
More than once a year
Once a year
Less than once a year
Never
Damian Stancombe, Partner at Barnett Waddingham
Chapter Two Educating to engage
Our research found an answer, hidden in the differences between how these two groups – the Haves and the Have Nots – approach retirement saving.
The pensions and retirement industry needs to find ways to turn the Have Nots of today into the Haves of tomorrow, to avoid potentially catastrophic retirement shortfalls. But how does one go about transforming the financial futures of millions of savers?
As you might expect, the Haves report checking their pension far more often than the Have Nots, with 61% of Haves checking their retirement pots more than once a year, compared to just 30% of Have Nots. More worryingly, Have Nots are three times more likely never to check their pension. This sends a clear message to the pensions industry that member engagement is vital. The cumulative effect of regular pension engagement over the course of a lifetime clearly makes a significant difference to the comfort of one’s retirement. How, then, can the industry engage its members? Firstly, by realising that Have Nots’ lack of engagement isn’t necessarily due to a lack of interest. In fact, our research uncovered a series of major barriers holding back the very members who most need help.
How often do you look at information about your pensions' ongoing performance/value?
of Haves check their retirement pots more than once a year, compared to just 30% of Have Nots
61
Ease of access is one such barrier, with almost half of Have Nots (46%) saying that they find it difficult to access their personal pension information, compared to just 20% of Haves.
"Accessing my pension information is too difficult"
Access no areas
Even when they can access their pension information, the Have Nots find it difficult to make sense of what it means in real-world, liveable terms. Just 17% of Have Nots said they found it easy to understand the quality of life their pension will afford them at retirement. Among the Haves, this rises to 57%.
Lost in translation
How easy or difficult do you find understanding the quality of life your pension will be able to fund at retirement?
Members’ confusion is exacerbated by another barrier: lack of financial education. 50% of Haves say they find it easy to understand pension-related investment and finance terminology. But only 14% of Have Nots could say the same. In fact, most Have Nots (57%) find this difficult to some degree, with a quarter (26%) finding it “very difficult”.
How easy or difficult do you find understanding pension-related investment/finance terminology?
Knowledge is power
Preaching to the converted
One way to improve members’ understanding of their pensions is to offer them useful communications, yet our study shows that this isn’t happening for the people who are most in need of them. Scheme communications are currently preaching to the converted, with 62% of Haves saying that they find their scheme’s communication helpful, compared to just 30% of Have Nots. If the industry is to help defuse the retirement timebomb ticking under members’ feet, its current approach to communications needs to change, and our research suggests that the best approach would be to adopt a digital pension platform.
62
of Haves find their scheme’s communication helpful, compared to just 30% of Have Nots
A digital solution
Despite finding engagement more problematic, the Have Nots show encouraging levels of concern about their precarious financial position and willingness to do something about it.
A digital pension platform therefore represents an exciting opportunity for Have Nots to take control of their financial future, whilst also addressing the aforementioned access, translation and education issues.
75
of Have Nots said they’d be more likely to engage digitally if it offered them quick and easy access to their pension information
said that they’d be more likely to engage digitally if it gave them an understanding of whether they are saving enough for retirement
72
said they’d be more likely to engage digitally if it provided education on how to save for retirement
63
Financial technology specialists, such as PensionBee, have achieved notable success through offering a digital-first platform for savers to access and consolidate all their pension savings. Our survey suggests that pension schemes should seriously consider investing in their own digital portals to boost engagement and improve member experience.
“I’d describe the pensions industry as like retail. We’re still on the high street, while everyone else has gone online. And that’s because of the conservative nature of trustees.”
Still, a digital platform alone won’t necessarily result in better pension outcomes for all members. Platforms not only need to be accessible, they need to have immediacy – in other words, be in the palm of members’ hands. And for that, you need an app.
30%
21%
20%
9%
23%
27%
Agree
Unsure
Disagree
46%
22%
54%
Easy
50%
14%
Diffcult
57%
Difficult
What members want
Next
Back
3 /3
2 /3
1 /3
How, then, can the industry engage its members? Firstly, by realising that Have Nots’ lack of engagement isn’t necessarily due to a lack of interest. In fact, our research uncovered a series of major barriers holding back the very members who most need help.
As you might expect, the Haves report checking their pension far more often than the Have Nots, with 61% of Haves checking their retirement pots more than once a year, compared to just 30% of Have Nots. More worryingly, Have Nots are three times more likely never to check their pension. This sends a clear message to the pensions industry that member engagement is vital. The cumulative effect of regular pension engagement over the course of a lifetime clearly makes a significant difference to the comfort of one’s retirement.
Chapter Three An appetite for apps
Many are struggling to engage with their pensions and find accessing information difficult. On the positive side, they are aware of this problem and revealed that they would engage more if given access to a digital pension platform. However, a parallel survey of trustees reveals a disconnect between member demand for such a platform and trustees’ interpretation of what members really want.
Our research has revealed that a significant proportion of people face the realistic prospect of not being able to afford to retire when they reach pensionable age.
2 Conducted by LexisNexis® Risk Solutions and Professional Pensions
2
On the one hand, 58% of trustees agree that an app such as a dashboard that amalgamates savings into one place would improve member engagement, and 62% think that failing to provide a digital platform would result in member disengagement. As Wayne Phelan, CEO of Punter Southall Governance Services, says: “You want to have ease of visibility and ease of decision-making. You don’t want to be on the phone for three hours trying to get through to a call centre. As long as you’ve got that functionality and it’s easy to use and safe, that’s what everyone wants. [But] it's hard to make things easy and secure.” On the other hand, two thirds of trustees in our survey (66%) also cite low member engagement and lack of demand as a barrier to their adoption of such technology, creating a vicious circle in which a digital revolution is held back by the perceived disengagement it’s also thought to resolve.
The Trustee paradox
Build it and they will come
What are the three main risks of not providing an integrated digital offering?
Consumer disengagement
Legacy systems leading to increased costs over long-term
Security issues e.g. more open to fraud and cyber-attacks in older systems
Trustee survey:
“A pension app that integrates members’ pots into one platform alongside other financial accounts (e.g. mortgage, savings, and current account) would improve member engagement”
Trustees’ concerns are not without foundation. Those we interviewed feel that members lack the financial understanding to truly engage with their retirement savings. Stefan Simons, Head of Investment and Fiduciary Technology at Railpen, says: “Education is important. In the workplace, you have regular educational sessions, cyber security videos and so on. I want my kids to do that and I want my parents to do that, but it’s hard to get them to do that when it’s not in a working environment.” As we have already seen, whilst the Have Nots struggle to understand their savings, they also place a high value on a platform that helps simplify the savings world and translate its jargon.
What are your top three hurdles to adopting a digital pension solutions for your members?
Pension professionals interviewed for this report voiced concerns that some members might be reluctant to engage through digital platforms given the risk of online fraud. “Scams come digitally, so how do people who aren’t as tech savvy know whether an email comes from [their provider] or is a scam?” questions Simons. With the cost of UK pension scams standing at over £14 billion , fears around fraud are certainly justified. However, arguably the advent of open banking in the UK, alongside mandated lockdowns as a result of the pandemic have introduced digital banking to a wider population, far beyond those whom would typically be deemed ‘tech savvy’. This suggests that more people would be willing to engage digitally given the right user-friendly technology and appropriate level of security. In fact, members in our survey supported this view. 60% told us they would engage more with a digital pension platform if they felt confident it could protect them from fraud, and three quarters (77%) support the idea that pension apps should have the same log-in security levels as online banking apps.
14bn
£
The current cost of UK pension scams
"I'd be more likely to engage with my pension(s) online or via an app if I could be confident it is secure and protects me from fraud"
Members survey:
Strongly agree
Tend to agree
Neither agree nor disagree
15
5
25
So far, we’ve discussed the benefit of digital pension apps for members, but they can offer significant benefits to schemes too, particularly with regard to data. To successfully deploy a technology solution, schemes must ensure they have high quality common data on their members. In the next chapter, we will explore trustees’ confidence in their data – and why it’s potentially misplaced.
3 ‘Cost of pensions fraud could be more than £14 billion’, The People’s Pension press release, 2 December 2020
77
of members support the idea that pension apps should have the same log-in security levels as online banking apps
62%
41%
36%
Tend to disagree
Strongly disagree
29%
4%
3%
22
Somewhat agree
Somewhat disagree
16
6
They don't come, so don't build it
58
Almost two-thirds of trustees agree that an app such as a dashboard that amalgamates savings into one place would improve member engagement
66
A similar number think that failing to provide a digital platform would result in member disengagement
Of trustees agree that an app that amalgamates savings into one place would improve member engagement
Think that failing to provide a digital platform would result in member disengagement
On the one hand, 58% of trustees agree that an app such as a dashboard that amalgamates savings into one place would improve member engagement, and almost two thirds (62%) think that failing to provide a digital platform would result in member disengagement. As Wayne Phelan, CEO of Punter Southall Governance Services, says: “You want to have ease of visibility and ease of decision-making. You don’t want to be on the phone for three hours trying to get through to a call centre. As long as you’ve got that functionality and it’s easy to use and safe, that’s what everyone wants. [But] it's hard to make things easy and secure.” On the other hand, two thirds of trustees in our survey (66%) also cite low member engagement and lack of demand as a barrier to their adoption of such technology, creating a vicious circle in which a digital revolution is held back by the perceived disengagement it’s also thought to resolve.
Cite low member engagement and lack of demand as a barrier to their adoption of such technology
Low member engagement/ demand
Cost
Completeness of scheme data; lack of key data such as email address
66%
52%
Pension professionals interviewed for this report voiced concerns that some members might be reluctant to engage through digital platforms given the risk of online fraud. “Scams come digitally, so how do people who aren’t as tech savvy know whether an email comes from [their provider] or is a scam?” questions Simons. With the cost of UK pension scams standing at over £14 billion , fears around fraud are certainly justified. However, arguably the advent of open banking in the UK, alongside mandated lockdowns as a result of the pandemic have introduced digital banking to a wider population, far beyond those whom would typically be deemed ‘tech savvy’.
This suggests that more people would be willing to engage digitally given the right user-friendly technology and appropriate level of security. In fact, members in our survey supported this view. 60% told us they would engage more with a digital pension platform if they felt confident it could protect them from fraud, and three quarters (77%) support the idea that pension apps should have the same log-in security levels as online banking apps.
On the one hand, 58% of trustees agree that an app such as a dashboard that amalgamates savings into one place would improve member engagement, and almost two thirds (62%) think that failing to provide a digital platform would result in member disengagement.
As Wayne Phelan, CEO of Punter Southall Governance Services, says: “You want to have ease of visibility and ease of decision-making. You don’t want to be on the phone for three hours trying to get through to a call centre. As long as you’ve got that functionality and it’s easy to use and safe, that’s what everyone wants. [But] it's hard to make things easy and secure.” On the other hand, two thirds of trustees in our survey (66%) also cite low member engagement and lack of demand as a barrier to their adoption of such technology, creating a vicious circle in which a digital revolution is held back by the perceived disengagement it’s also thought to resolve.
Chapter Four The data dilemma
Trustees also recognise the importance of empowering members with this insight, and agree that digital solutions could be just the tool for the job. But the business case for long-term investment in technology doesn’t just stop at member engagement and improved retirement outcomes; technology also helps reduce operating costs for trustees, and ensure higher-quality, and more reliable member data. "One of the first steps towards creating a successful digital pensions platform is to ensure the common data that underpins it is high-quality and well-maintained. This will be a critical success factor in the planned development and roll out of pension dashboards generally.
Pension scheme members who have concerns about their retirement prospects are in favour of technology solutions that can show them how much income their various pension entitlements might generate in retirement.
Our survey shows that, by and large, trustees are very confident that their data is high quality. Asked to rate the accuracy and completeness of their schemes’ common data, trustees gave on average a score of 8.3 out of 10 – a remarkable demonstration of confidence. However, according to the owners of the data themselves – scheme members – that confidence may be somewhat misplaced.
“You can be as clever as you like in the technology… but it all falls down if the member behaviour or the data creates vulnerabilities. Sometimes people overlook that when they’re thinking about [technology] on the front end. They downplay the importance of the underlying data. That’s one of the principal challenges, how varied the quality of the data is.”
Chris Connelly, former Chair of the PASA Pensions Dashboards Working Group
How would you rate the quality of your scheme’s member (common) data in the following areas?
Scheme data accuracy (i.e. up to date and correct)
Completeness of scheme data
Data consolidation (i.e. de-duplicated and aggregated records that create a consolidated single member record)
4
Average score (1 = very poor; and 10 = excellent)
The accuracy of scheme data relies heavily on the data owner – members themselves – to keep it up to date. When asked, over half (52%) of members revealed they do not tell their pension scheme every time they move home, and 1 in 6 members (16%) said they never tell them. This implies that schemes are working with outdated, incorrect personal information for well over half of all their members. This suggestion is further corroborated by the 52% of trustees who admit they have issues with returned mail – an issue almost exclusively caused by inaccurate data.
And returned mail is just one symptom of poor data; almost half of trustees (48%) admitted to experiencing low member engagement due to the inaccuracy of their member data. In reality, trustees may not even know the true accuracy of their members’ data which will depend on the nature of the scheme and how easy they make it for members to update personal details. The important issue remains: schemes are heading towards a digitalisation process potentially unaware of the limitations of their data. Schemes whose data is not as complete as they’d like to think, not only face process and operational challenges, but also risk leaving themselves and their members wide open to fraud.
Returned mail
Poor member engagement
Inappropriate contact attempts e.g. writing out to a deceased member
Poor customer service
Processing of data subject access requests
Where are the challenges you have in relation to poor quality member data?
“Pension schemes are in a unique position, in so much as their members will be their ‘customers’ for longer than virtually any other organisation – potentially their whole adult life.”
Alan Clay, Head of Strategy, Customer Data Solutions, UK & Ireland LexisNexis® Risk Solutions
People’s name, address and other contact details inevitably change over their lifetime, but unless members diligently notify their pension providers of each change, schemes have limited ways to keep track, resulting in ‘data decay’. The fact that pension providers have very few required touchpoints with their customers – perhaps only when they reach retirement – means that this data decay can be left to worsen over long periods of time. Often then, the only remedy is a one-off data cleanse and tracing project to reconnect with members. As mass digitalisation becomes a reality however, the industry has a unique opportunity to reduce the problem of data decay significantly. Working with trusted data and analytics providers, it is possible to identify changes in member circumstances automatically and confidently, without any required action from the member. Such ‘perpetual’ data management will significantly reduce both the likelihood of lost contacts and the costs associated with reconnecting with ‘gone away’ scheme members, as well as the risk of regulatory repercussions due to holding inaccurate member data.
Combating scams and fraud
Accurate data is also of vital importance in the battle against pension scams and fraud and with £14 billion already having been lost to pension fraud in the UK, the stakes are high. Poor data invites fraud and opens up significant weaknesses in a scheme’s security by gifting fraudsters at least some of the information they need to perpetrate the crime, as Mark Little, Head of Identity Strategy at LexisNexis® Risk Solutions, highlights;
This is not a trivial risk, and in fact could affect increasing numbers of people as DC scheme membership grows through auto-enrolment. The risk increases for younger savers, who typically spend more of their lives renting and will therefore change address more frequently than previous generations. As our research shows, returned mail is an even more common issue for trustees than poor member engagement. For their part, schemes must also make it as easy as possible for members to update their address and other contact details. In doing so they can help to reduce the risk of member data decay and subsequent risk of them losing their savings to fraudsters. Some onus should also be put on employers, who if given a duty of care to ensure that pension scheme members’ personal information is correct at the point they leave the company, would create a useful checkpoint for data accuracy and at least some additional assurance to trustees.
“You can implement the latest, most robust security available for your digital platforms, but if your member data isn’t accurate and you send mail to a member’s old address, any sensitive information in that letter can be misappropriated and used to perpetrate identity fraud, including accessing the member’s pension.”
Kicking the can down the road?
Many trustee boards and their administrators have been required to spend a huge amount of time and resource over the past few years tackling legacy data issues such as guaranteed minimum pension equalisation. The repercussion of this is less resource, time and money available for investing now in the future of the scheme itself. “There are a number of schemes kicking the can down the road [on data],” says Wayne Phelan. He explains that “some trustee boards may prefer to wait for deferred members to retire and sort it out then,” as retirement is usually a high touchpoint between the scheme and member. Other schemes may be reluctant to launch a new functionality without having full confidence in the quality of the data for all their members, meaning that upgrades are delayed.
Regardless of whether trustees are prepared to invest in digital technologies, the fact remains that they must get their data in order to comply with their regulatory requirements; requirements that, following the introduction of the Pensions Act 2021, will oblige trustees and scheme managers to provide information to pensions dashboards. This will only be possible with accurate and up-to-date data.
“As with any data project, the longer you leave it the less chance you have of ever populating any missing data. There is a greater risk in not doing things sooner.”
Wayne Phelan, CEO of Punter Southall Governance Services
A digital dichotomy
4 ‘Ibid' 5 The proportion of renters in the UK as a proportion of all households has been on the increase for much of the past 20 years, while home ownership has been falling in the same period. See: ‘In the United Kingdom, homeownership has fallen while renting is on the rise’, Christian Hilber and Olivier Schöni, Brookings Institution, 20 April 2021 and ‘Home ownership among people aged 35-44 has plunged – ONS’, The Guardian, 10 February 2020
Yet, a majority (62%) of trustees also admit that low engagement will be one of the most likely future consequences for schemes that don’t embrace digitalisation. Where digital services are off the table, schemes should at least focus on better data quality to improve their ability to communicate with members and in doing so drive better engagement.
In chapter three, we learned that the expectation of low engagement from members is one of the main factors preventing trustees from investing in a digital pensions offering.
of trustees admit that low engagement will be one of the most likely future consequences for schemes that don’t embrace digitalisation
It’s therefore more than a little surprising that only a third of trustees (36%) are committed to investing in data improvements to boost member engagement; a point that Alan Clay, Head of Customer Data Strategy at LexisNexis® Risk Solutions, believes indicates a lack of appreciation of the potential benefits good data can create for members and schemes;
“Holding accurate and up-to-date data will undoubtedly drive greater engagement and a more positive experience for pension scheme members. Not only will it enable a more customised offering for the individual and a smoother customer journey, leading to positive member sentiment, but it also helps the scheme to better protect its assets and those of its members.”
The investment vs engagement impasse appears to essentially come down to predicted returns. Cost was cited by more than half of trustees as one of the top three hurdles to implementing digital technology, and schemes seem unwilling to put their hands in their pockets without proof that engagement will follow. Resolving this dilemma will be crucial to addressing the potential pension timebomb facing the Have Nots. What's more, schemes may be missing the bigger picture. In addition to the potential for better engagement and improved access, leading to better data accuracy, experience shows that financial technology is capable of vastly increasing the efficiency of pension scheme processes “through risk management applications, the automation of investment processes, and the facilitation of regulatory compliance” – all of which present areas of concern for trustees.
Whether apps are enough to encourage members to faithfully engage with every one of their pension pots remains to be seen, and it may fall to pensions dashboards to successfully tie these digitalisation efforts together. In either case, the industry response should be multi-pronged: better technology, better data, better education, better engagement. Trustees must start by confronting the reality of the potential data problems they face and ensure they have a resilient and responsive data management solution. Failing to do so puts members at risk of both online and offline fraud. Trustees must also accept that costs work both ways. Done well, digital communications and data handling are substantially cheaper than maintaining paper records, as fewer people are required and less physical space is needed for storage. Reducing costs in this way, even if just by a few percentage points, can help trustees lower the overall costs of running schemes – offsetting any initial cost of investment and later passing the benefits on to members.
Fewer than one in ten (9%) pension scheme members responding to our survey had the option to access their pension information through a smartphone app, but a third (31%) would welcome the option. Furthermore our study shows that apps, where they’re available, typically become the portal of choice for member engagement.
Member survey
What methods are available to you for accessing your pension?
Via an online portal (website)
Via email
Via smartphone app
Via phone/ call centre
90
Level of preference if already available
Overall level of preference
If all of the following options were available to you for accessing / receiving information about your pension, which ones would you prefer to use?
Customer complaints – e.g. receipt of duplicate statements
7
8
9
8.36
8.31
7.95
48%
25%
16%
12%
8%
Through the post
Via phone/ a call centre
Via a smartphone app
18%
80
31%
77%
59%
74%
58%
34%
Long time, no see
6 ‘Technology and Pensions: The potential for FinTech to transform the way pensions operate and how governments are supporting its development’, OECD, 2017. https://www.oecd.org/finance/Technology-and-Pensions-2017.pdf
Only one in three trustees are committed to data improvements to boost engagement
The accuracy of scheme data relies heavily on the data owner – members themselves – to keep it up to date. When asked, over half (52%) of members revealed they do not tell their pension scheme every time they move home, and 1 in 6 members (16%) said they never tell them. This implies that schemes are working with outdated, incorrect personal information for well over half of all their members. This suggestion is further corroborated by the 52% of trustees who admit they have issues with returned mail – an issue almost exclusively caused by inaccurate data. And returned mail is just one symptom of poor data; almost half of trustees (48%) admitted to experiencing low member engagement due to the inaccuracy of their member data. In reality, trustees may not even know the true accuracy of their members’ data which will depend on the nature of the scheme and how easy they make it for members to update personal details. The important issue remains: schemes are heading towards a digitalisation process potentially unaware of the limitations of their data. Schemes whose data is not as complete as they’d like to think, not only face process and operational challenges, but also risk leaving themselves and their members wide open to fraud.
Despite the success of auto-enrolment, a significant proportion of UK adults still face a major shortfall in their retirement savings.
Many of these under pensioned are well aware of the risks they face and want to do something about it. But, the lack of ease of access and financial knowledge required to take affirmative action leaves large numbers of people at risk of an underfunded retirement. A digital pension solution can make all the difference. Offering quicker and easier access to pension information, a holistic view of an individual’s finances, and tools to improve members' understanding and engagement with their retirement pots, a digital solution has the power to change people’s retirement outcomes for the better. It could also help trustees to keep on top of their member data in a more cost-effective way and ensure compliance with regulatory requirements.
The ability to engage digitally with your pension is only going to become more important as the digitally-native Generation Z reach working age and are enrolled into workplace pensions. As a group who are far more liberal in sharing their personal information online and who will on average have many more employers over their working life than their parents, the membership of tomorrow will have very different service requirements to past generations. Trustees must review their reservations in regard to investing in digital platforms, for the future good of the pensions sector. According to our research, their concerns around the likely return on investment into digital tools is largely unfounded. On the contrary, members are crying out for digital access to their pension information, and nowhere is this desire stronger than among the under pensioned – the very people who would benefit most from better engagement tools.
Pensions dashboards have the potential to play a critical role in changing trustees’ perceptions by creating a wave of demand for basic pension information online, and by being that conduit through which members interact and engage with their retirement savings. But for digital pensions solutions to succeed, schemes must first get their data in order. Accurate common data is the cornerstone of successful digital services – to ensure a good experience, schemes must be able to confidently and quickly authenticate members and present the correct information to them. Conversely, inaccurate data could have myriad consequences for scheme and member, and ultimately result in failure for the digital platform. Misplaced trustee confidence in their scheme data should be a concern and may have implications down the line, not least by opening up schemes to fraud and member mistrust. There’s little doubt that the pensions sector is at a critical juncture. Addressing the adequacy and security of pension savings and generating the necessary impetus to make members think and act to secure their retirement futures, requires strong action from the Government, trustees, and pension providers alike. For their part, schemes can lead the march by improving the quality and accuracy of their data and future-proofing their operations for digitalisation. The time for action is now.
The future financial security of millions of retirees, depends on it.
The ability to engage digitally with your pension is only going to become more important as the digitally-native Generation Z reach working age and are enrolled into workplace pensions.
Conclusion Are you digital-ready?
