It is a safe assumption that the majority of people who read this article will do so online. This is what we have become accustomed to: accessing materials and products at the click of a button, whether that be news, consumer goods or financial information. More than 80% of adults in the UK access the internet daily1; quite simply, we take unlimited access to data for granted.
Against this background, it is increasingly the norm for individuals to manage their finances online. Statistics from the Office for National Statistics identify that more than 60% of adults regularly manage their financial affairs on the internet2. By and large, it is a shift in consumer behaviour that has been embraced by the financial services industry, providing online access to day-to-day banking activities, savings, investments, insurance products, etc.
But the pensions industry has been relatively behind in this trend. Whilst members of defined contribution schemes (particularly those administered by a specialist DC provider) typically have access to reasonable data in respect of current fund value, investment options and the ability to manage transactions online, members of defined benefit schemes have been poorly served. Although defined benefit pensions are fast becoming a legacy issue, there are still millions of members of private and public sector DB schemes who need the ability to manage their pension benefits effectively.
Why it is important to provide members with online access to their pensions benefit data?
Whilst this is an issue that should be on the agenda for the entire pensions industry, there are three key stakeholders in particular for whom greater access to information online would provide significant benefits:
- Members - Aside from growing expectations around managing finances online, the advent of Freedom and Choice has given members more potential to actively manage their retirement benefits. The next generation of retirees will largely have a much more complex mixture of DB and DC pension benefits, representing a more significant challenge to managing retirement income. Having readily available access to data and modelling tools will enable members to make more informed decisions and seek the right insight, where needed. A recent survey by Professional Pensions3 identified lack of information as a key factor in the decline of people taking financial advice regarding their pension benefits; better access to data and benefit details can only be beneficial.
- Trustees are increasingly focussed on improving member experience, helping to facilitate good outcomes and enabling members to make informed decisions; online access for members is an obvious step in achieving this. The additional benefit for Trustees is increased efficiency in their administration provision, a step which should help Trustees to manage cost more effectively and generate greater value for money from their administration provider.
- Employers - Greater access to materials on retirement benefits should help to ensure that employees are better able to prepare for retirement in advance, enabling employers to have greater certainty regarding workforce planning. This can be even more valuable where information on pensions is combined with wider flexible benefits to provide employees with an holistic view of their package.
What is preventing the industry from moving forward?
Whilst greater member online access has obvious benefits, there are a number of barriers to successfully achieving this goal:
- Pension scheme data quality needs to be improved to facilitate online access. The key data items required have often not been subjected to the rigour of data integrity checks and are currently not part of the Common data requirements set out by the Pensions Regulator.
- To enable members to effectively model retirement options and obtain transfer values, pension schemes need to put in place greater levels of automation. Offering members the ability to model retirement and transfer options requires a level of automation which is often lacking, but can only be to the benefit of administrators in managing risk and increasing efficiency, at a time when costs are under increased scrutiny.
- There will continue to be challenges in encouraging certain groups of members to manage their retirement provision online. The level of interest and uptake will differ depending on the type of work force, age groups and socio-economic demographics and typically need to be addressed on a scheme-by-scheme basis. Indeed, some schemes may decide that a paper-based approach to member engagement remains the best course of action based on the membership profile. The important thing is that Trustees and employers actively consider the best strategy.
- Providing access to information is only part of the challenge – it needs to be accompanied by greater education for pension scheme members around options available and retirement planning to support good member outcomes.
These challenges are by no means insurmountable and tackling them would not only support greater online access for members, but improve the operation of pension schemes and the member experience in general.
How do we make this happen?
In my opinion, the industry at large (typically third party administrators) has not progressed the move to online access as actively as it should. I would therefore encourage Trustees and employers to work with their advisers and challenge in 3 keys areas:
- What is the strategy for member engagement and how can access to online benefit data help to better facilitate this?
- Understand what your administrator’s capability is to deliver against this plan and consider what other options may be available if required.
- Work with your administrator to understand the challenges in delivering member online access and develop a plan to address these.
By actively managing the process in this way, Trustees and employers have a great opportunity to manage their schemes more efficiently and support scheme members in achieving better retirement outcomes.
1 "Internet access - households and individuals: 2016", Office for National Statistics
3 "Cost is key factor in decline in retirement income advice", Professional
Pensions, 7 October 2016.