Pensions are back in the headlines and flavour of the month online. In March 2015, Google Trends in the UK saw a spike in the number of searches for 'pensions' and related terms, as the deadline for reform approached.
So what do customers want to know about their pensions? And can pension providers offer accurate rather than an estimated view of pension performance?
New online calculators launched by firms such as Standard Life, Hargreaves Lansdown and Fidelity indicate that providers think customers want to know two key facts:
- How much money they'll need to be able to retire
- Whether to take the cash as an annuity or as a draw-down facility
This is simple and on point – after all, what more is there to know? However, the challenge arises when we look at how customers would calculate this information. Pension providers expect customers to understand:
- How much they're contributing today
- How much their employer is contributing
- The total value of their overall pension pot, including the amount they've contributed so far with their current employer
- How much they want to take as tax-free cash
- How much they might want to take as an annuity
- How much they might want to draw down
- What a sensible goal is for retirement income, taking into consideration any asset base
- How that total retirement income will translate to yearly income
It's doubtful that many customers will know all these data points for one of their pensions, let alone multiple workplace pensions with several employers.
The obvious solution is to help customers work out these data points. This could be as simple as educating customers about pensions in general rather than tailoring to specific situations. For example, most of us can easily learn what a sensible goal is
for retirement if we understand what percentage of our salary is needed to live comfortably in retirement. Information on how different amounts of salary could affect lifestyle would also help to plan successfully.
Taking pension provider services to the next level
But pension providers could be more helpful still.
Most can access information on specific investments, such as fund reports and can estimate performance over time, on average. Pension providers could even present a view of estimated costs and charges as long as the customer tells them when they began contributing.
So it becomes essential for providers to offer projections and easy information based on minimal customer input. If the customer wants to go a stage further and obtain accurate information, they can input more details to get an actual view of what they'll
have in retirement.
Today's pension calculators provide estimates – but there's some work to be done here. What if customers could indicate the sort of lifestyle they want in retirement and providers then used this information to predict how much salary they need and the amount
that they should be contributing every month?
In addition, providers could offer real value by recommending how much customers should take in tax-free cash, as well as a clear explanation of the implications of tax-free cash when compared to other options. A similar approach would work well when recommending
to a customer whether to take the pension as an annuity or draw-down - rather than asking customers which they would prefer to do.
There are a few providers that already meet some of these needs. But a provider that can offer most or all of these consistently stands to make real advances in terms of customer acquisition. There are, however, a few things to be wary of:
- How regulation impacts provider recommendations ("advice") when it relates to retirement income
- The assumptions made when recommending approaches to customers – assumptions may be the best they can offer and work for the majority, but providers should be cautious about recommending to the minority
- Data security – a single consolidated view of pensions undoubtedly helps customers, but equally brings challenges around customer data
Providers should nevertheless try to meet customers' needs on pension education. These challenges will not be insurmountable.