Tag Archives: pensions

Pensions firms will they attract and educate or just extract?

Posted on by

Rob Gardner RedingtonRob Gardner of Redington has just thrown down a challenge to the Pensions industry. click here. His quote (below) is in response to the success of Auto Enrolment.  Auto-enrolment is handing a whole new batch of customers to pensions firms.  Will the firms lean forward and seek to help these customers with great products and advice that help them secure their retirement.  Or will they just take this new crowd of customers and work out how much money they can extract from them.

 

 

Rob puts it differently in his article in Pensions Expert

For the first time in decades, we have a captive audience of pension savers. We could do what we have always done and hope some of it sticks. Or we can take up the challenge and recognise that the workforce of today will want to engage in a different way.

We could simply direct employers to the Pensions Regulator website, or we can start to develop communications fit for a world where Siri and Alexa capture the imagination of a new breed of savers. On the whole, the population lacks both the confidence and knowledge necessary for financial security. 2017 must be the year we really start to address this.

Redstart Financial EducationAs well as being a pensions investment consultant and co-founder of Redington, Rob is campaigner for better financial education (Redstart) so we can all create a more secure financial future for ourselves.

It’s pensions freedoms day. Time to disrupt the industry?

Posted on by

Pension Wise, pension freedoms

There has been much discussion in the press and the pensions industry about George Osborne’s new Pension Freedoms that come into force today on April 6th.

The debate fluctuates from how the freedoms could create a whole series of new mis-selling scandals to a broad welcome that people are being given more control over their own pension money, rather than being told by government what they should and should not do.

The pensions industry generally welcomes the move, but the discussion seems focus on what others (govt and customers?) can do rather than on how the industry can change in ways that would help customers. The debate revolves around what the public and the government might be doing wrong, rather than whether pensions companies can develop new products to provide what people need.

I believe these freedoms are very welcome, they provide a trigger for change, it is a real opportunity for the industry to create new products that will help customers and transform this business. Until the industry focuses on what it can do to help customers rather than talking about why customers should save more or governments can provide advice and regulation, the public will not be properly served. This post discusses and analyses the opportunity for the pensions industry to develop new products

First: what are the concerns about the new freedoms?

The expert commentary largely revolves around three serious concerns. These concerns add up to a serious worry that the public could be worse off.

  1. If people withdraw all their pension pots in one go in one year they are still subject to a 25% tax which will be a windfall for the treasury but at the expense of the public’s ability to create income for themselves in the future.
  2. There are not enough quality advisors available to help people decide what to do and be sure it is in their best interests. And for many the cost of advice is simply not affordable. the government is offering free advice, but this is very limited in scope and seems to be fraught with implementation problems.
  3. Annuities are still the best option for some people as they ensure they do not run out of money. But they have have been criticised for being poor value. They have a bad press and may be dismissed by people for the wrong reasons and people will end up worse off.

Clearly these are all risks. Problems will happen to some degree.  There are things the government and the industry can do to minimise and mitigate these risks. But do these problems add up to an argument that these pension freedoms are a mistake? I believe it is not a mistake, because the move to giving people pension freedom was the only way the government could break a system in which a restrictive tax regime had been exploited by pensions firms who offered products that delivered poor value. And importantly since the products on offer no longer provide an adequate income in retirement, something had to change.

Second: Pensions industry is too focused on itself and not on customers

The Pensions industry seems to operate with three observations about the general public

  1. First, people do not save enough for their retirement needs. This is largely motivated by a desire to have things now rather than be prudent and save. The implication is that people are being foolish.
  2. Second, that saving and investing for income are complex matters that can only be grasped by professionals, this is made harder to understand by taxation complications. In addition products are generally complex and difficult to understand.
  3. Third, everyone’s situation is different and we all need personalised advice.

Now some of this may be true in some cases. But are people really that irrational that they ignore their future needs?  Are people all so different that everyone needs bespoke expensive advice?  It is distinctly possible that the problem is the products are too complex and unattractive rather than customers’ foolishness.

Why is that pensions and investment products are so complex and impenetrable to the average person?  I think it starts with the purpose behind pensions products.  The products are designed to make money for the provider and pass on the risk to the customer.  Most pensions firm products that have a cost structure that guarantees income and profit to the pension firm and leaves the customer with all of the risk. This structure and risk share is very off-putting to customers.

Third: it is time to disrupt the industry

Pensions is one of the few industries that has not been disrupted by insurgent newcomers. It is dominated by established players. Many industries are being disrupted by people creating better products that help customers. e.g.

  • EasyJet offered an easier way to book airline tickets at a better cost
  • Google are transforming the advertising and media businesses by making it easier to access for smaller businesses.
  • Apple and Samsung have pretty much destroyed other mobile phone makers with products that do what people want (and do much that people could never imagine they wanted)
  • Amazon are working their way through most retail industries with simpler easier lower cost customer service.
  • Airbnb are transforming hotels and travel.

There is an opportunity for someone in pensions to provide both accumulation and decumulation products that are designed to help customers first rather than be designed first to secure an income for the asset managers and product providers and only give secondary thought to how the product helps customers.  A few early thoughts are that a new better product would

  • Be easy to understand
  • Be managed online
  • Have fair and transparent charging (including risk share)
  • Be segmented to satisfy the majority of the population’s needs
  • Not need independent expensive financial advisers
  • Would be endorsed by the regulator

When someone does this (when not if!) the population will return to investing in pensions, ordinary people will be able to exploit the pension freedoms and be more more secure in their retirement. Whilst the current paradigm is maintained, then many will either avoid pensions, will make mistakes and will be poorer in retirement.

How to design such a product?

start by reading this article on AttractiveThinking

Better products vs better persuasion?

Posted on by

creating better pensions productsI have been spending some time with pensions professionals who are grappling with how to make pensions work better for the whole population. There is clearly a problem for many of us.  Many people will not have adequate provision for income in their old age.  This kind of customer problem presents an opportunity for the industry to do some better persuasion and better marketing.  But it also offers an opportunity to create better products.

I have noticed that the debate about better pensions highlights two different ways you can approach trying to solve a problem for your customers.

The first is to try and persuade people to behave differently

The focus here is how to get people to buy what you provide or sell.  This is what many business leaders are trying to do in different industries.  It is an important activity to get growth.  This seems to be the main focus in pensions.

Much of the pensions industry discussion is about getting people to take pensions more seriously. It is about getting people to save in a responsible manner.  This is manifest through the government’s auto enrolment scheme; by advocating the provision of independent advice via IFA’s; via the development of training and financial education for people.

The implication of this approach is that people are behaving irrationally.  We just need to change our ways.  We are not looking after ourselves and need educating and coercing into investing so we have a pension.  Then we need advice to take income from a pension fund in a responsible way rather than blowing it all away on holidays. Then we will have a better retirement.  This financial education and advice sounds very worthy and well intentioned.

Now I can see that much of this analysis and the need for different behaviours is true. Many people are headed for a poor retirement as a result of their inaction. But I would argue it is blinkered to concentrate only on trying to persuade people to behave differently.  Most of my experience says that trying to educate people to behave differently is very hard, it is an uphill slog with few rewards.

Alternatively, it can be much easier to create something that people actually want, that they see as solving a real problem for them.  That way they will be attracted to the solution rather than feeling badgered into it. So …

The second way is to create better products

Is the pensions problem just that people are behaving badly?  Or maybe the products on offer could be better?  Maybe the problem is not just that people are behaving stupidly, but that the products and services that are available just do not meet the real needs of ordinary people all that well and that the industry could also help people by developing better products?  It is clear from the National Association of Pension Funds’ Workplace Pensions Survey October 2013 that there is a perception amongst many ordinary people that pensions cannot provide for their future.  There is a lack of trust.

In my experience, when there is a lack of trust then educating or marketing alone will be very hard work and may not be effective.  We need better products.

What are better products?

Better productsWell “better” usually means things like

  • easy to understand – so you know what you are buying
  • easy to access – online often does this, or being in the right shops
  • deal direct with the customer, no intermediaries – intermediaries often add cost and slow things down, they need paying and do not have the same priorities as the customer (think of travel agents)
  • better value for money –
  • solves a real problem for a customer – (Tesco click and collect service)
  • does not exploit the laziness or ignorance of the customer (utilities often do exploit this)
  • takes care of the customer (First Direct)

Online solutions often deliver a lot of these elements which is why there is so much growth in online products and services.

An good example of an industry transformed by better products is to try and remember the short haul airline industry before Easyjet, Southwest Air and Ryan Air. The airline industry has been transformed by these game changers. Look at how much better it is for customers today. Easyjet and RyanAir were Game Changers.

An easy mistake to make is to think your industry is more complex and more difficult than the industries where game changers have created change and that better simpler products are not possible.

The pensions industry knows it has unique challenges and is more complex than the airline industry was. That may well be true. But the top executives of traditional national airline carriers British Airways, Lufthansa, American Airlines all thought their business was complex and did not really innovate until the low cost carriers arrived with better products.

Come to our event on 29th May

Game-Changers-2-wordsWe are running an event next week that looks at how the most successful leaders have created better products and services to deliver real real game changers in different industries. The event is called Game Changers and is on 29th May at 1400 at Campus London in Bonhill St Shoreditch (see details here)

One of our headline speakers is Mike Harris who is the original financial services game changer. Mike created First Direct and the Egg card internet banking business.  Mike will talk about what it takes to be a game changer.  Mike will share some insights on how to do this.

Another speaker is John Scriven from South Bank University, Marketing Science and the Ehrenberg Institute.  John has some surprising and ground breaking insights under the title How brands grow – what marketers don’t know?  John will share insights that are used by many of the worlds top companies on how to present better products to customers.

More information about the event is here www.gamechangers1.eventbrite.co.uk. Tickets are free.  It is just 3 hours during the afternoon.  there will be some debate around the case studies and examples.

If you have any thoughts or comments on this please add them to this article which is posted in the GameChangersUK linkedin group.  This is an online group that will continue the debate.