Why is the pensions industry behind on technology?
Pardon the Interruption
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What is holding the pensions industry back when it comes to adopting technology to help members – and will the dashboards be a welcome boost or outdated before launch?
The pensions industry acknowledges that its use of technology is behind where many other sectors are but has so far found it hard to catch up. The government is pushing schemes in this direction by legislating for a pensions dashboard, but more might be needed. What, though, is stopping trustees from diving head-first into the tech sea?
At the mallowstreet DC Indaba held on Tuesday, trustees were advised to let go of some major myths around technology and data – from believing that people would not share their data and have no money, to a view that legacy systems hinder the deployment of new technology.
Samantha Seaton, the chief executive of fintech company Moneyhub, said trustees have a moral obligation to enable members to see what they have in their pension, providing them with insight and financial understanding.
A treasure trove of data
Pension funds and employers are well placed to do this thanks to the vast amounts of information they hold about their scheme members and staff – data that retail companies would “give their hind teeth for”, said Seaton. What is more, the majority of consumers are happy to share that data if they receive a benefit in return, she added, countering the argument that people would be reluctant to do so.
The often-held view that people don’t have enough money to save was also dismissed. Seaton compared the amounts spent by consumers on such things as video gaming (£3bn last year) and make-up (£258 a year) with how much they put into their pension. “They might not have a lot of money, but they have some, they just choose not to put it into a pension,” she noted.
The fintech CEO also sought to allay fears about cybersecurity, arguing that the online world is becoming more, not less secure, as verification systems and the monitoring of online activities for legitimacy are continuously improved. She pointed out that people are frequently exposed to fraud in other areas of life – direct debits or cheques, for example – yet still use those methods.
Legacy systems are no excuse
The existence of legacy technology is sometimes seen as a further obstacle to improving technology in pensions, but Seaton pointed out that tech giants such as Google and Amazon have legacy technology too, yet don’t let that stop them from improving their offer. These firms’ mantra of ‘continuous deployment’ is one the pensions industry should – and can – adopt, through layering new technology on top of older one, she suggested.
But technology shouldn’t just be for the accumulation phase, Seaton stressed. People in drawdown should be able to assess, for example, how a one-off spending decision – such as a new TV – might reduce how long their money will last in retirement. “No one has any ability to know; I’d like them to know, ‘What is the impact if I spend that?’” she said.
Integrate tech with members’ daily life
For Vincent Franklin, co-founder of communications firm Quietroom, the problem is that the pensions industry is not customer-driven. “We are driven by process and legislation,” he said, adding that the industry packages products and services for people and gets angry if they don’t want it, rather than listening to members.
“In the history of change it has been demanded by people, not given to them,”noted Franklin – and the industry is therefore wrong to assume that it can change member behaviour top-down.
Technology should create a seamless connection between pension saving and other areas of life such as banking and shopping, Franklin suggested, as more and more people use technology to manage different aspects of life with the help of apps.
He doubted that the pensions dashboards, pushed for by government, will be able to achieve this. The existence of multiple commercial dashboards could lead to increased mistrust in the industry and be seen as a way for commercial dashboard providers to make money from savers. “The more the dashboard belongs to those people, I suspect the less valuable it will be,” he said.
The industry should focus on the reason for creating a dashboard, he suggested. “The whole point of open banking and the dashboard is, it ties up everything,” he said. Pension data cannot continue to exist in isolation.
“Ultimately, they will have to plug it into bank accounts,” said Franklin. “We are building something that is outdated and will continue to separate pensions from the rest of the environment.”
Banking apps set high benchmark
Others too believe pension dashboard users will benchmark their experience against open banking, introduced with the EU’s Revised Payment Services Directive and in force in the UK since January last year.
Pensions are a financial product, said Terry Alleyne, a trustee for the Citibank UK Pension Scheme, and most people would think of bank accounts first and foremost when asked about financial products, and comparison could therefore be inevitable.
What most agree on is that the current state of affairs too outmoded to continue. “Something has got to be created to give people closer access. The technology is there to do it,” said Alleyne, adding that large DC administrators “should come together and drive this forward themselves”.
How can employers and schemes help members with tech-based solutions? And do we need more trustees with an IT background?