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.
INTELLECTUAL PROPERTY IN THE AGE OF INDUSTRY 4.0
The growth of the digital era and industry 4.0 have fuelled the growth of intangible rather than physical assets, with intellectual property (IP) representing one of the largest asset classes that a company can hold and can include patents, trademarks, brands, databases, software and trade secrets.
James Turner, Director at Company Formation Specialists, Turner Little takes us through the details of why it is important to protect these assets, and how we can do so:
“IP is important, but rarely accounted for, because we most often equate value with money. It’s not always easy to evaluate its financial worth, but it’s important to create a plan to protect it.
“Businesses need to understand the source of the value and the brand of their businesses
“From a commercial standpoint, IP needs to be protected in order for companies to maintain their unique market position, but it can also have financial benefits – as it can be used as collateral for loans or company valuation in the event of a merger or acquisition.
“As industry 4.0 takes hold, we expect there to be a sharp increase in concerns surrounding the protection and ownership of IP rights. Designing the right business structure is an important consideration when protecting a company’s IP from theft, misappropriation, infringement or even potential creditors. For example, companies can limit liability through the use of holding and operating companies, which enables owners to centralise the company’s assets. Offshore companies can also be leveraged in the creation of these structures and can offer additional flexibility.
“That’s where we come in. At Turner Little, we specialise in creating bespoke solutions and structures for individuals and businesses of all sizes. Whether you’re a small business owner or own a large plc, it’s important to ensure that your IP is secure, so you can focus on building a successful business.”
STOCK MARKET ANALYSTS DISCUSS HOW TO INVEST DURING A RECESSION
- Online tool looks back at how world markets recovered after the last recession in 2008
- Analysts take learnings from previous recessions to offer insight on how to invest during a period of instability
- Certain areas of the stock market can increase in value during a recession
The economic crash due to Covid-19 is a unique event, however stock market experts have taken learnings from previous recessions to predict the stocks that may increase in value during this time.
IG Markets, Europe’s largest online derivatives trading provider, has taken learnings from previous recessions, using historical data and online tools such as Decade of Trade, which visualises world stock market trends over the 10 years since the 2008 crash, to provide predictions about the areas of the stock market to watch during an inevitable recession.
Stocks to watch during a recession
Under expansionary circumstances, stocks that have strong growth prospects such as healthcare and consumer staple sectors, for the future typically command lofty valuations and produce high returns, as investors bank on the company’s ability to generate more income as time progresses. This phenomenon typically results in high price to earnings (P/E) ratios like those currently present in some of the market-leading tech stocks.
In the event of an economic downturn, however, these profit-hopeful stocks are often discarded as investors align their income assumptions with slowing growth and lower consumer spending.
On the other hand, stocks with stable – but often more modest – income generation tend to be more insulated from dramatic stock shocks that frequently accompany recessionary periods. These stocks are known as “defensives” and, broadly speaking, include the utility, healthcare and consumer staple sectors. Given their profitability profiles, they become an important collection of stocks to keep an eye on when the broader market encounters a rough patch.
Consequently, a portfolio comprised entirely of equities is remarkably vulnerable in times of recession, particularly at the onset when losses are often steepest. With that in mind, it may prove beneficial to look outside of the equity market for some of the best recession-proof investments.
Gold can be an investment during a recession
XAU/USD is widely regarded as a safe haven asset for its stable store of value and tangibility. Further still, gold can act as an inflationary hedge, making it an attractive investment in times of recession and in periods of lower interest rates when inflation may threaten to take hold. Gold has demonstrated an almost innate ability to retain its value during contractionary periods, thus making it an attractive investment in times of uncertainty.
The US dollar: an attractive currency during recessions
Sharing similarities with gold, the US Dollar also boasts safe haven attributes. Due to its role as the world’s reserve currency and the backing of the world’s largest economy, the US Dollar is both incredibly liquid and sought after. Issued by the Federal Reserve, the Greenback is arguably the safest currency in the world and has become a quasi-currency of exchange in many nations where domestic currencies have had their purchasing power fall, due to inflationary pressures or other economic woes.
Consequently, holding US Dollars during periods of uncertainty or turmoil is often viewed as an attractive alternative to other assets. Evidenced in the Great Financial Crisis when the United States dragged the rest of the world into a global recession, the US Dollar surged almost 25% during 2007 to 2009 even as the Federal Reserve lowered interest rates to the floor.
The Dollar’s strength was largely owed to the fact that the Federal Reserve possessed ample liquidity and the US economy was soon in a position to recover while others were mired in recessions – some of which have never fully recovered.
Joshua Warner, Anaylst at IG Markets, said: “While there is a strong argument that a global health pandemic like Covid-19 has been on the radar of governments and institutions for decades, the lack of preparedness of most governments and businesses shows how unprecedented the current situation is.
“It is almost guaranteed that the UK will enter a recession in the coming months. The Bank of England (BoE) has said it is likely to be the sharpest one on record, while Chancellor Rishi Sunak has warned it will be a ‘severe recession the likes of which we haven’t seen before’.”
Peter Hanks, Junior Analyst at Daily FX.com, said: “With the benefit of hindsight and the lessons of the three most recent recessions, it can be argued the best recession investments are not stocks at all, but rather assets that retain their value even as growth slips. Therefore, if equity exposure is a must-have in your portfolio, the US Dollar and gold should also be given consideration – particularly for the risk-averse investor or one who suspects an impending recession.”
To learn more about the stock market over the last 10 years to understand future trends, please visit: https://www.ig.com/uk/special-reports/decade-of-trade
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