By Andrew Storey, Proposition Director, EValue
Change is afoot for the way pension providers communicate with their customers. Following itsRetirement Outcomes Review (ROR), which launched in June 2016, the FCA released its second consultation paper on the subject in January 2019. This asked pension providers to improve consumer engagement. Final regulations relating to the ROR will be announced in July 2019, and the FCA will give pension providers 12 months to comply. These regulations are likely to include a ‘wake-up’ pack every five years from age 50, in addition to the annual statement currently issued to customers. This will let consumers ensure they have a plan for their pension that will see them through retirement.
With so much customer-centric flux in the market, now is the ideal time for providers to consider how they give the best guidance and advice to customers. And not just to get ready for the July 2020 deadline, but also to develop a competitive edge.
The status quo
Customers are often segmented into three areas: pre-retirement, at retirement, and in retirement. While providers communicate with these audience segments in different ways, a more bespoke journey is needed. To serve savers better, and on an individual basis, providers should take a holistic approach to each customer’s journey. This is vital to foster a relationship with customers throughout their entire lives, and to encourage extra business from them.
In the at retirement space, many providers are simply currently pointing customers to the Money and Pensions Service (MAPS. Some providers have sections on their websites with guidance tools too. However, those who are either pre-retirement or in retirement usually receive nothing more than their annual statement. Figures show that there are 15.1 million active members of occupational pension schemes, 10.2 million with pensions in payment, and 15.8 million with preserved pension entitlement in the UK alone: a huge number of people saving into a pension with no form of help, guidance or attention.
Auto enrolment in the workplace started in October 2012 and has had a significant impact on the number of people with a pension and the number of pension plans in existence. But many of those auto enrolled in pension schemes may have no idea who their pension provider is. In addition, they will likely accrue, or have already accrued, multiple pots with different providers as they move to different employers. Research suggests the average person will work for six different companies in their working lives.
Pension providers should do more than the bare minimum. Now’s the opportunity to do more than meeting the basic ROR requirements and look at exactly what their customers need and want in retirement. Taking a holistic approach will enable them to do this. And it should go further than simply taking a bigger-picture approach to all aspects of a customer’s pensions journey. Providers need to consider their customers’ entire financial situation.
Pension providers tend to only consider the pension a customer holds with them. But the reality is that they are likely one of several providers the individual is using – whether out of choice, or through auto enrolment. Therefore, providers usually only look at what the customer can do with that specific pension amount.
In reality, people’s retirement decisions depend on more than one pot. They might have a final salary pension or other pots elsewhere. So, the sum invested with that provider might not be needed – and could be taken entirely in cash to help pay off their mortgage without compromising their financial security. To generate further business from these customers, providers should help customers understand exactly what they’ve got, and what outcomes this will provide. They should go above and beyond simply informing them as to what their pot of money holds, and how much they’ll be able to take each year to last the rest of that individual’s lifetime.
One way of doing this is to give customers access to an online automated advice service that provides options specific to them. This service should regularly touch base with the customer throughout their accumulation journey, in a format that suits them – for example via text alert, in the form of an app, or as a regular email. It should also help customers understand what extra information they need to build a full picture of their circumstances. The service will help them understand their situation, while giving them the opportunity to ask for help if they can’t locate certain information.
This isn’t just about customer experience and satisfaction. There’s a commercial incentive too. If a customer decides to move all their money into one place, they are likely to do so with the provider they have built the best relationship with – and the one that has provided them with the best support and customer service. According to PwC’s survey, 73% of respondents say customer experience is one of the key drivers of brand loyalty for them. A provider might initially identify a customer as being small because they have £10k in their pot, but they might also have £1m in three other pots – money that a provider would greatly benefit from being invested with them.
The gold standard
The gold standard that pension providers should aspire to is offering a financial buddy service. This could help pre-retirement customers set goals and receive regular updates to ensure they achieve the level of income at retirement they desire. It should also give those at retirement the tools to make the best possible decision for them, and update those in-retirement on their goals, so they can check their funds will still meet their retirement income needs. It could, for example, model a scenario that helps the customer understand how much extra cash they can take out in an emergency, or whether or not they can buy a new kitchen, and then how this may impact their future income.
By implementing a clear customer communication strategy, pension providers can both get ahead of the forthcoming regulations, and gain a competitive edge by building a valuable service for their customers. This service should help consumers both invest in their future and, by osmosis, also encourage them to invest further back into the provider. After all, it’s a win-win for both parties.