Barnett Waddingham partner Paul Leandro talks to Jack Jones about the firm’s award-winning DC technology offering
JJ: Congratulations on being named DC Technology Provider of the Year at our DC Awards. The need to communicate with members is driving a lot of change in the DC sector. What’s the ultimate aim of all this innovation?
PL: To inspire people to save. It’s fair to say that, as an industry, we’ve failed to really engage with people as to the reasons they need to save over the long term. It is hard to imagine somebody working hard for 45 years finding they haven’t saved enough to even get by in later life.
We do need to encourage people to pay in more, and to contribute for longer, so that they have enough money in their pots to do something with when they retire.
JJ: What are the tools you’re putting into the hands of members to help them do this?
PL: We’ve developed an online engagement tool we call Me2. It’s designed to engage, educate, and empower people to make the right decisions.
If you are really going to engage with someone you have to make it personal
If you are really going to engage with someone you have to make it personal. All the imagery is therefore based around the member’s age, and the system knows their contributions, how much they have in their DB and DC workplace pension schemes and it knows the contribution structure of the open DC scheme.
Not only can someone automatically and immediately see their pension savings in one place, they can tell Me2 about any other pension savings they have, and essentially start to model against their aspirations. To inspire and encourage people to save, they need to see their savings in the context of their aspirations. If they can set those aspirations logically – Me2 has some interactive tools so people can model what their goals can be at different times – and if they can see that those aspirations are achievable, it could inspire them to pay more in.
For the majority of people, contributions is the main driver to reach the best outcome
For the majority of people, contributions is the main driver to reach the best outcome, particularly in the early phase. So if we can encourage people to pay in more, and get the added incentive of the employer contribution plus tax relief, and understand about the cost of not starting early enough, we are getting half way towards making sure they have enough in their pots at retirement.
JJ: How do you get these messages across?
PL: Thinking about how to frame the messages, and which messages to convey, is a really key part of Me2. People need to receive messages at different times.
Long-term saving is a composite problem, but not a complicated problem
Long-term saving is a composite problem, but not a complicated problem. That’s a challenge we have as an industry: people thinking pensions are too complicated. They’re not. There are only three factors that affect the outcome: how long you pay in for, how much you pay, and the net investment return. As soon as somebody gets that, then they can make rational decisions.
Me2 is framed to make sure those messages are conveyed at the right time. If you’re 20-30, the message is why stay in, if you’re aged 30-50, the main message is how much to pay in, then when people get to 50, that’s when they start to really engage with their pension pots, because retirement becomes a tangible thing.
People are no longer aiming for one particular date to convert their savings into an income
In the new world of pension freedoms, a pension is no longer a linear thing – people are no longer aiming for one particular date to convert their savings into an income. Me2 allows people to create a picture of what retirement might look like over a period of time. That’s where it differentiates from other systems – allowing people to really plan how and when to draw benefits, using an online system that knows their finances.
Me2 can also show off the power of the default escalation of contributions. Incremental increases in contributions can have a significant impact on someone’s eventual fund value.
JJ: What about for the employer?
PL: If corporates’ suite of employee benefits are going to reach their objectives, the corporates need to fully understand their workforce. We can help them do that based on analytics.
Another piece of technology we’ve built is GEM – which stands for governance, engagement, monitoring – that can take data from Me2, from payroll, and from the pension providers’, or wider savings providers’, databases to provide a true picture of the workforce – looking at the various cohorts, and really drilling into the detail to understand what the employees’ behaviours are, and what corporates could be to do to generate the best outcome for them.
It’s only when an employer looks at the analytics that they can identify any issues
It’s only when an employer looks at the analytics that they can identify any issues in relation to pensions or wider savings. They could choose to ignore those issues, or they could choose to address them, and redesign the benefits where needed. GEM can allow employers to project forward the impact of making changes, and to look back at where changes have been made, to see if they have had the desired impact.
JJ: How will Me2 develop?
PL: It comes back to what motivates us. We’re not motivated by gathering as many assets under management as we can. What motivates us is doing the right thing and encouraging people to save.
If an employer does want to use Me2, it can plug into trust-based, mastertrust or contract-based schemes
We’ve built a system that is agnostic to the pension scheme, or third-party administrator, so if an employer does want to use Me2 for its pension arrangements, it can plug into trust-based, mastertrust or contract-based schemes.
Me2 going to develop to be able to plug into other third-party administration systems, it will be able to cope with the introduction of the Lifetime ISA, and build out into wider savings – not just to concentrate on long-term savings, but to help people with debt management and short-term, medium term and long-term savings.
Barnett Waddingham was named DC Adviser of the Year and DC Technology Provider of the Year at Pensions Insight’s DC Awards