More complex retirement savings journeys increase need for customer engagement supported by advisers working hand in glove with robo-advisers
24 October 2016
Comment from Adrian Boulding, Head of Retirement Strategy at Dunstan Thomas
Attending the 10th anniversary conference of The Pensions-Net-Work (TPNW) earlier this month gave me some useful insights into how fast things are changing in the workplace thanks, in no small part, to the relentless march of technology innovation. It also gave me pause to ponder what all this might mean for the retirement market.
We had a panoply of excellent speakers at the conference held in the heart of the City in The Banking Hall, 14 Cornhill. These included Paul Johnson, Director of the Institute of Fiscal Studies (IFS) who presented a great deal of information from one of the IFS’ latest studies entitled: “The economic circumstances of different generations: the latest picture.”, which gave some top-line numbers on real family incomes stagnating and many more people in their 30s not managing to get on the housing ladder (40% down from 55%).
We also found out that the majority of this cohort that are now renting their home are also paying more of their net income to do so – those that are renting are on average spending 30% of their net income on housing, as opposed to 15% for those that have been able to afford to buy the roof over their head. And yet George Osborne chose to introduce tax changes to choke off supply in the Buy to Let market.
Perhaps more importantly for people in the retirement market, this same cohort is also part of the first generation not benefitting in any meaningful way from Defined Benefit (DB) pensions. Only 10% of them, mainly working in the private sector, will have access to DB schemes. Many, you might argue, have however benefitted from Auto-Enrolment (AE). But the reality is that, with current AE contribution levels at something equivalent to 1/20th of the average DB scheme, there is a real risk of retirement age poverty hitting this group unless something is done to curb the relentless pull away from retirement savings collectivism and towards individualism.
The only problem is that the Pensions Freedom-inspired pendulum is still swinging in the direction of individualism as employers remain very keen to cut their losses by closing down DB schemes. To this end, they are paying increasingly more attractive DB to DC transfer values to remove the debt/risk of debt from their balance sheets. And there are still very real dangers of more BHS-style pensions disasters. Both TPR and the PPF are all too aware of this and are seeking new powers to mitigate against it.
So if we are moving relentlessly in the direction of passing more responsibility onto individuals; and this is happening at the very time when many people are likely to be least able to afford to save substantively for the long-term, surely we need to think very hard about how to assist future generations of savers to stick with the long-term savings habit? The crisis may not be imminent yet. Those reaching retirement age in the next ten years will probably be OK, but I worry for those hoping to be able to afford to retire in twenty years’ time.
We also need to help them manage what may become a confusing and variable array of sources of income if the TPNW Conference’s third speaker, futurologist and CEO of Fast Future Research, Rohit Talwar, is to be believed.
What became clear from listening to Rohit, author of ‘A Very Human Future’, was that many traditional 9-5PM, single employer jobs may become a thing of the past in the future. Although the time horizon for this seismic socio-economic change is, to say the least, sketchy the argument goes that automation will take out millions of full-time jobs, sector by sector - as new technologies arrive to take the place of humans.
One example that Londoners cannot fail to miss if they take the occasional taxi around the capital is that Uber taxis threaten the livelihoods of many traditional licensed cabbies because the new model of using a mobile app taxi locater connected with PayPal and a growing army of self-employed hybrid car owners, all powered by Uber, cuts the end cost of the service considerably. Uber taxis are therefore taking away a portion of the livelihoods of many London taxi drivers. But Uber wants to go further by cutting out human drivers altogether by going driverless. The first driverless Uber taxi hit the streets of Pittsburgh just last month.
It’s a good example of so-called ‘disruptive’ technology taking away the jobs and threatening the livelihoods of hundreds of thousands of people around the globe. Could we ever reach the point of a self-managed asset that owns itself?
Personally, I don’t buy this Artificial Intelligence-led ‘jobs armageddon’ theory for the simple reason that humans enjoy doing business and interacting with their fellow man. We derive value from serving and being served by people and we will want to preserve this as a vital element of our quality of life.
However, I do believe working practices will change in the sense that many more of us will become portfolio workers – working for multiple employers on short-term contracts and projects which will ebb and flow. Our incomes will become more fluid and less predictable. As such the job of long-term saving is about to get a whole lot tougher, simply because we may not be able to come up with a fixed amount each month that we know we can save towards our retirement. Our saving activity will have to become more dynamic – in tune with this changing way of earning.
Ironically perhaps, I believe some of the solution to managing this new long-term savings balancing act lies in technology. For example, technology providers can build highly engaging customer portals which can display a dashboard of all your accounts in one place at the touch of a button. Clever technology can even suck the data out of ropey old legacy systems and present it to customers in an attractive way.
It’s also possible to build online tools to effectively ‘gamify’ the process of working out how much you need to be saving at a notional retirement date and then notify us if we are veering away from our goals.
Providers are now building many of these customer engagement tools, working with Dunstan Thomas and others. Better still, many of these providers are now offering white label versions for advisers that are transacting through their platforms.
So it becomes possible to conceive of adviser firms providing robo-advice-type services to help engage many of their clients, whilst stimulating them to seek full face to face regulated advice when tough decision-making demands it. On the other hand, online self-service tools can take care of more routine task such as valuation or performance checking and investment rebalancing. Robo-advice could therefore begin to support, rather than risk replacing, fully regulated face to face advice. These online offerings can help cement relationships with customers and keep them coming back.
And if there is any doubts about turning over routine queries and information gathering stages to the robots, these are dispelled by SwedBank who were able to establish that 89% of its customers preferred to use its new automated ‘chat bot’ virtual assistant application online, rather than having a live web chat provided by a contact centre agent. There are some routine tasks that are simply better carried out by computer. Sure this demands some upskilling of the workforce. But ultimately it means that more of us can have more fulfilling lives in which some of the routine donkey work it taken off our desks. Now that is a future that we can all look forward to with relish surely?
Adrian Boulding is Director of Retirement Strategy at Dunstan Thomas