TECHNOLOGY FUELS MEANINGFUL PENSIONS ENGAGEMENT

Published by:  Adrian Durham,  FNZ Group, Founder & CEO

Adrian Durham, chief executive and founder of FNZ, reveals how a more digital experience is boosting people's interest and engagement in their pensions, during this interview with The Sunday Times. FNZ is a leading British fintech platform headquartered in Edinburgh, partnering with many of the UK's largest financial institutions to support millions of households saving for retirement and other financial goals.

WHY HAS ENGAGEMENT BECOME AN INCREASINGLY IMPORTANT METRIC IN THE PENSIONS INDUSTRY?

It’s largely been driven by the shift from defined benefit (DB) to defined contribution (DC) pensions, accelerated by the introduction of auto-enrolment in 2012 and then further regulatory changes in 2015 giving DC scheme members more control over their savings. In a DB scheme, engagement isn’t terribly important. As long as you stay employed until your retirement date, you can have a degree of certainty about what your retirement income is going to be. It is very simple to understand. DC schemes, on the other hand, are far more complex. As households invest in assets, which have a degree of risk and evolve dynamically, retirement income is less certain and influenced by personal investment decisions and the degree of risk taken on. If something is more complex and less certain, and it needs people to understand a lot more about what they are doing, it requires greater engagement.

 

HAS ENGAGEMENT IN PENSIONS INCREASED OVER THE LAST DECADE?

Yes, but not by enough. We've been tracking engagement, at the highest level, since we first entered the workplace pensions market in 2011. In 2012, around 10 per cent of people viewed their pension online at least once a year. Now, it is just over 30 per cent, so a threefold improvement. While it is great that one in three people now engage with their pension digitally, at least once a year, that means two-thirds still don't, so there is clearly a long way to go.

 

Technology has played a fundamental role in sustainable cost reduction and access to growth investments for UK households

 

HOW IS TECHNOLOGY ABLE TO INCREASE ENGAGEMENT FURTHER?

There are a number of ways, one of the most important of which is personalisation and answering questions that are meaningful to each person. Every pension scheme member should be able to visit a mobile app or website and immediately understand, in a digestible format, how much they’re going to receive as a retirement income based on what they’re currently saving and what products they’re saving into. In the DC world, we present this income as a likely range, along with educational information on how they can influence that. People now retire at different ages and in different ways. For example, some take early retirement or semi-retire, while others come in and out of retirement, so it is essential we help people to personalise their pension to their own specific needs. Technology is making this more interactive and it is also allowing people who haven’t traditionally been able to afford a financial adviser to access personalised robo-advice, which is becoming a really important service.

ARE YOU FINDING THAT SAVERS ARE ALSO BECOMING MORE INTERESTED IN THE SPECIFIC COMPANIES THEIR MONEY IS INVESTED WITH?

Increasingly so, but I think a lot of people still look at their pension fund and have no idea that underneath it they are probably invested in some very exciting businesses, which really interest them, such as Amazon and Tesla. Technology can increase engagement in the economy more broadly by helping people to understand they are directly participating in some of the greatest innovation taking place around the world. Equally, it allows them to directly influence issues that are important to them on a personal level. Without compromising the importance of professional asset management for their lifelong savings, they can influence the extent to which their pension has a positive social and environmental impact based on the particular companies it invests in. Technology can allow them to not just see the impact of their investments, but set constraints on certain things they care about as well. For example, if they don't want to invest in companies which contribute adversely to climate change, they can set constraints around that. Half the world's capital comes through pensions from median-income household savings, and technology is crucial to giving savers a direct role in how their money is allocated and the effect it has. By doing so, it not only boosts engagement in pensions, but helps direct capital towards companies helping to build a more sustainable future.