A good place to start? linking pensions and banking
27 Aug 2019
Few would disagree that the most important driver of innovation in the pensions market will be the availability and intelligent use of data, to better serve customers and improve their outcomes. Providers, from the big life companies through to Fintech start-ups, are all trying to establish which data and pieces of analysis to focus on. There is almost too much choice – with the art of the possible ranging from ‘round up’ savings incentivisation on purchasing our morning coffees, through to the provision of automated advice in retirement.
I think the most likely initial innovation development will actually be a fairly simple one. Savers are beginning to be able to see the value of their DC pension savings alongside their personal banking data (including current, savings accounts and mortgages). It is early days, with only very few banks and pension providers (Scottish Widows has recently run a trial with parent company Lloyds Banking Group) currently offering customers the ability to link their pensions and banking data into a single view. However, it will become more commonplace, particularly as initiatives such as the pensions dashboard develop further.
Research shows that currently 65% of customers check their bank balance at least 4 times a month, whereas I would hazard a guess that the majority of savers might only view their pensions balance once a year, if that.
No one is totally sure of the behavioural impact of pensions becoming a greater, more visible part of customers daily lives. However, a few themes are emerging;
At the most basic level, it will increase savers awareness of what their pension savings add up to. We can expect to see simple ‘income translation’ quantifications being added alongside balances, so that customers can quickly see not just their balance, but what this might equate to in terms of regular retirement income. This awareness will probably serve to improve savings rates in accumulation. In decumulation, will it result in more prudence?
Short term investment fluctuations in the value of DC pensions savings will become much more apparent. Many savers in accumulation will be used to seeing their pot value go up (as the impact of, say 12 months of contributions will typically exceed any shortfall due to investment returns). As a result, the any reduction in value resulting from market movements might be a shock, or at least concern savers. Will this result, for example, in drawdown customers shifting their investments to lower risk assets, or guaranteed alternatives?
Banking-style service expectations. Viewing the pensions balance alongside banking products will increase expectations regarding aspects such as immediate on-line access, to withdraw or even transfer pension balances. The days of having to wait 3-4 days to receive funds from your pensions account feel numbered.
Consolidation. This will probably be the primary commercial driver, incentivising banks and providers to share pot values. Being the provider that features on the banking-app may be a powerful driver to consolidate all of your pensions into that pot (so that you can see a single picture of your finances). This driver is likely to be particularly strong when customers look to access pots from age 55 onwards.
It will be interesting to see how the industry innovates in this area in the coming years. Increasing saver engagement with their retirement pot cannot be a bad thing and bringing together day to day banking and pension saving into a single view seems like a good place to start.