Thanks to last year’s reform of the pension regulations, today’s consumer has greater freedom than ever before over how to invest or spend their money.
The responsibility for managing a pension pot has shifted from the provider into the hands of the individual and, unlike the consumer of yesteryear, pension-holders can now for the first time have complete control over their own pot of money.
So, with these newfound freedoms, what’s going to happen?
Independent research commissioned by Experian found that of the over 50s, around 15% plan to take the traditional route and buy an annuity, while 10% plan to take cash all in one go and a further 42% plan to reinvest privately.
Of the remainder, 24% plan to clear debts when their pensions reach maturity and around 20% plan to splash a little money on luxuries that were perhaps previously out of reach.
All of this marks a big change for the pension companies, but for individual investors the change is even larger as, over time, it’s expected they’ll become increasingly more involved in their own financial planning – and to do that, the consumer will need quick and easy access to their information.
Managing your money
With four million pensions sold each year contributing to a general pot of around twenty million pensions held across the UK, that’s a lot of customers. If they’re all expected to become engaged in running their own pensions, then simple logistics and market forces will require the providers to offer a self-service way for people to manage their funds.
Despite the doubts of some providers that customers will want greater access, the public appetite for using digital technology will sooner or later extend to managing their pensions. Funds will need to become accessible and functional in the same way that bank accounts have moved online and onto smart phone apps.
With money from a single pension invested in numerous pots, pension companies have been presented with the challenge of providing individuals with an overall picture of where their investments are placed and why a particular fund has been chosen.
Within five years, it’s anticipated that a new user-capability will have been developed that will allow consumers to do exactly this. When this happens, the pace of take-up could be rapid.
While pension providers might have their doubts about the appetite amongst customers for change and greater digital engagement, they need only look at the seamless integration of chip-and-PIN, contactless payments, and use of apps into mainstream banking as evidence of how comfortable the consumer is with new ways of dealing with the financial arrangements.
Online banking is perhaps more common, and often more convenient, than visiting a branch. In five years’ time the same could be true for dealing with a pension.
The challenge for the providers isn’t likely to be a lack of engagement, it’s likely to be keeping up with demand – and competition – for high-quality digital services that allow people to control and gain an oversight of their investments in a quick and easy way.