Chris Pitt, Head of Market Analytics at IRESS, shares his views:
“Over recent years the UK has become a nation of spenders and borrowers rather than savers. Research carried out by The Savings & Investments Policy project– a coalition of over 50 entities from across the financial services industry (initiated by TISA) – shows that one third of UK adults have less than £250 of savings, and less than half of people of working age are saving for retirement. So parlous is this level of personal saving that we are heading for a tipping point in 2035 when we will be retiring less well-off than our parents – a situation that hasn’t occurred since the state pension was first introduced.
“So, the country needs to act and act soon. The government has already taken some bold steps such as implementing auto-enrolment and introducing new pension freedoms. However, there is more that needs to be done if consumers are to engage with their future finances. Much of this revolves around changing attitudes and behaviours but there is also a significant role for improving the processes through which consumers interact with their finances and access financial products.
“Firstly, there is a need to help consumers understand the totality of their pension savings. What will they be entitled to from the state? How many pension pots do they have and what are they worth? What other savings have they made, and what will their total assets – including property – be worth when they retire?
“Secondly, having understood their finances, and the need to increase their savings, the process of doing something about it needs to be as quick and as easy as possible. Ideally it should be a matter of a few clicks efficiently performed in minutes rather than repetitive form-filling taking hours or even days. Behavioural economics shows that when human beings are presented with too many options and too much paper-work, we tend to ‘switch off’ because we become overwhelmed.
“So what will it take to resolve these critical issues? Well, the UK government is already pushing a couple of ideas, both of which will require the industry to come together and act on a collective basis…
“Firstly, it wants to see the industry create a ‘Pensions Dashboard’ – an internet-based service through which all UK adults can see and review the entirety of their retirement savings. Creating this kind of consolidated view of holdings is something that IRESS has been helping financial advisers do for many years now so we know how valuable this kind of service can be. Clearly, this is not something that can be achieved overnight but there are examples of other markets, such as Holland or Denmark, where a similar model has been successfully introduced and The FCA has stated its aim is to see this implemented in the UK in ‘the next few years’.
“Secondly, the government wants consumers to have the option of using a ‘digital passport’. This would be an online identity and personal data-store, eliminating the need for endless form-filling, data capture and manual processing. Through experience we know just how long and difficult the task of proving a clients’ identity and then assessing product suitability can be. But, if a client could prove their identity just once and add it to their own personal data store and this record could be automatically – and securely – maintained over time then we could boost efficiency across the industry.
“Changes of this scale could be seen by some as a challenge to some aspects of the financial advisers’ role. However, we believe that these initiatives will ultimately lead to a bigger, more vibrant market where more financially engaged consumers will need, and seek, regulated advice. What’s more, administrative burdens will become significantly smaller as tasks like fact-finding become executable at the click of a button.
“At IRESS we know that through technology we can not only automate existing administrative processes, but we can also influence consumer behaviour and enable functions that were previously unthinkable. The ‘pensions dashboard’ and the ‘digital passport’ are just two examples of how technology is becoming a real driving force for change across the industry.
“Ultimately, the UK needs to move back towards being a nation of savers. The freedoms have moved pensions up consumers’ agendas – but comparing different options is difficult and runs the risk of overloading the majority.
“The evolution of technology, combined with an appetite across the industry for greater collaboration and a desire to improve performance and outcomes for consumers provides an impetus for change. Yes, there are issues to be resolved – trust, security and usability among them – and success will depend upon a co-ordinated industry approach alongside the government and regulator to make this happen, so that we can set consumers on the path to a comfortable retirement.”
