Futuristic funds: how technology is changing your pension

Technology is transforming our financial lives, with no exception for pension plans. What are the major trends on the horizon and how can savers, managers and companies prepare for the future?

The industry has gone through a series of changes in recent years. Perhaps most notably, there are more savers younger than ever: Gen Zers are more likely to have opened a pension fund than millennials and baby boomers at the same age, according to PensionBee.

This tech-savvy generation is entering an industry that is changing rapidly, making the whole process of signing up, saving and tracking your pension much easier than ever.

Changes in Savings

Take consolidation, for example. This has grown in importance as the world of work has changed. Today, the old concept of a “job for life” is far from the norm. In the decade to 2017, the average UK worker spent just under five years in one job, while some 9 million Britons have changed jobs since the pandemic began.

In this context, consolidating the pensions of a myriad of roles is big business. Older savers are particularly likely to have several pots of retirement savings from former employers: reminding them to track this is crucial.

Other changes help less savvy savers top up their funds without a lot of active decision-making. In the wake of the personalization trend, “automatic rounding” rounds up contributions on a given date, while “automatic escalation” increases them over a period of time. “Auto-escalation is the next step after auto-roundups and is likely to have a bigger impact in the long run,” says Romi Savova, CEO of PensionBee.

As public pensions are fragile, more and more people are finding out about their retirement options taking into account their specific personal situation. Personalization is essential for savers to take charge of their financial future.

By equipping savers with easily accessible and up-to-date information, we may finally be able to dispel the belief that pensions are too complex

Improving the digital provision of pension information helps savers predict what they will need to save and when. Even pension-age savers are now more open to digital interactions, with up to one in three over 75s opening a new account online during lockdown, according to digital identity specialists GBG.

“By equipping savers with easily accessible and up-to-date information, we may finally be able to dispel the belief that pensions are too complex to engage in or are only relevant at a certain age,” says Savova.

Finally, technology is helping to combat retirement fraud, with measures ranging from secure identity checks to bank-grade encryption. Traditional knowledge-based authentication is being phased out as scams become more sophisticated.

Biometric technology is proving to be a particularly indispensable tool in the fight against fraud. Spencer Lynch is Director of Innovation, Wealth, Life and Pensions at GBG. “It gives funds and administrators greater confidence that they are actually engaging with the member at any given time,” he says. It also complements the trend towards personalization, with younger savers being less privacy-averse.

Learn to adapt

What will these advances mean for plan managers, savers and businesses? To have any real impact, they need to help savers visualize what retirement really looks like, says Damian Stancombe, partner and director of creative agency DrumRoll at Barnett Waddingham. This demand is not only related to investments, “but to what retirement is financially, physically and mentally,” he says. “Not everything is monetary. If we haven’t been there yet, how do we know what it looks like?

Empowering savers could benefit them, but could entail costs for the industry. “Platforms can give members the ability to have a lot more control over their options and decisions, but companies need to be aware of how to wield that power,” Stancombe warns. “If a member makes a bad decision, it could open an organization to wrongful claims and class action lawsuits.”

Many companies are simply not ready for the pension technology revolution. “Too many plan managers and companies don’t think about savers,” says Samantha Seaton, CEO of Moneyhub. She notes that the Financial Conduct Authority (FCA) is introducing Consumer Duty, which is scheduled for July 2022 and aims to encourage a higher level of consumer protection in retail financial markets. This “says a lot about the slowness of plan managers and companies to respond to the needs of savers”.

Pension dashboards

Consumers today are more aware of the ethical credentials of their pension funds. The long-promised pension dashboard could help them choose and monitor their investments more effectively.

The Pension Dashboard is a technology ecosystem that will show a saver all of their pension information online and securely. With investments in pension funds in the UK amounting to over $3.59 billion in 2020, this retirement technology presents an opportunity.

“Business dashboards that provide essential insights to savers about the value of their pensions, the cost of that pension and the underlying assets and what that means for people and the planet are an incredible opportunity to change the way which we all interact with and engage with in our long-term savings,” says Seaton. “It’s great for savers and the wider positive impact that pension funds can have.”

With better engagement and education, the pension dashboard could eventually provide a “two-way exchange of information,” says Tom Skinner, founder and director of financial planning at Barnaby Cecil. “Platforms could then collect information on how investors want their money to be used, which should mean that investment products are provided that are more in line with an individual’s ethical requirements.”

Based on the use of similar dashboards in other countries, all pension schemes are likely to receive at least 20,000 “search requests” per day, or one every two seconds, once the system operational dashboard. The industry must be prepared to deal with this volume of demands.

For the time being, it looks like the dashboard’s reach will only extend to providing accurate information about an saver’s holdings at all times. Going forward, however, this should eventually lead savers to ask more questions about exactly where these funds are being invested.

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