Advertorial: There are big challenges, but we will develop the answers, says The Pensions Trust’s Logan Anderson
The one thing that the Mastertrust Association is keen to debunk is the myth of homogeneity. Whether or not the number of providers will be whittled down to a handful, we’ve yet to see.
We’ll probably have three different business models at least. The state sponsored arrangement (NEST – or something like it) is one. We’ll also have at least one mutual/ not-for-profit (long established) scheme. And then there’ll be the private sector providers.
This competition is good, as this will drive the kind of product and service developments that we don’t see in other sectors with limited players.
And when you look at things like utilities (okay the comparison isn’t a good one!), the more players (and types of players) we have, the more we’ll see competition drive innovation.
And inside every mastertrust is a group of people seeking to get that competitive advantage that will make their scheme the scheme of choice when the dust settles.
That competitive advantage is all about improving outcomes for members and improving value for members and employers. But the base point is the member. Society isn’t saving enough, members aren’t engaged with saving and pensions don’t look an attractive offering in terms of outcomes.
We’re already seeing more choice at retirement
And here is where the successful mastertrust designers will differentiate themselves. Let’s start with outcomes. Final outcomes. Eventually, you have to take an annuity.
We’re already seeing more choice at retirement. Impaired life annuities are now well and truly a thing of the present. As is shopping around, just about, though there may be some nervous providers who provide the savings vehicle and the annuity for members.
The better value that most members get from shopping around will be incorporated into pricing of the provision of annuities. We have it already. Most others do. All will.
90% of members using the service don’t opt for any escalation
So what next?
Well, in a recent conversation with an annuity bureau, I was informed that 90% of members using the service don’t opt for any escalation. That’s hardly surprising.
Rates are so poor currently (and life expectancy so long), that members are trying to get as much now as they can to make up for the consequences of being locked in to low interest rates for so long.
I think we’ll see developments in the means to allow many more people to avoid locking in to low interest rates (that’s drawdown). This will be driven by the providers who want members to invest with them for longer and who know that the money leaves when the member takes it elsewhere.
Greater flexibility in retirement will be mainstream in ten years time, if (and it’s a big if) providers can also provide the means to assist members in making the decision of when they should lock in.
This new breed of members is actually not that different to the old group
Greater member engagement and education will assist here and this is where the second key development area will come. The new breed of joiner is having pensions stealthily creep into their lives through auto-enrolment. This new breed of members is actually not that different to the old group that actually chose to join.
They won’t be waiting for the reassuring slap of benefit statement envelope on doormat once a year. And yet, they will become more engaged. And what will engage them is the monthly reminder that they’ll receive telling them that their contributions have been invested, inviting them to “click here to see how your savings are doing”.
The ability to access information at your leisure is the key to member engagement
It’s the careful use of this monthly opportunity that will make a difference firstly in the engagement of members, but secondly in the value (the perception) that they derive from membership. Even if smartphones become a thing of the past, the ability to access information at your leisure is the key to member engagement as the overwhelming majority of people have access to mobile technology.
Twelve (monthly) low cost opportunities to engage with members every year? That’s manna from heaven.
That’s twelve opportunities to involve members in more retirement planning
So, that’s twelve opportunities for members to check their balance. That’s twelve opportunities to involve members in more retirement planning.
Birthday reminders, mid-career seminars and webinars, preretirement countdown services are all perfectly suited to a medium that members can use at their leisure, wherever they can find the bandwidth.
It’s also twelve opportunities for oversaturation, advertising and cross-selling of course. But for the purists, it’s a gift not to be squandered.
And it affords providers the opportunity to promote the benefits of greater levels of contribution, the third key development. Member contributions at minimum levels will not generate great outcomes. And yet, the means to predict your outcomes is the educational point that will drive members to contribute more.
Mastertrusts are the schemes that are benefiting most from the auto-enrolment revolution
Mastertrusts are the schemes that are benefiting most from the auto-enrolment revolution. This is the revolution that nudges people in. They’ll have the opportunity to pick the administration providers who innovate most in terms of their modelling tools.
This will place them ahead of other providers.
And returning to the mastertrusts themselves, in a recent conversation with Dean Wetton (who provides much of the energy and driving force behind the Mastertrust Association’s work), he expressed this point once more, as the MTA seeks to educate the world on the differences between their model and that of the contract scheme and how the drive of the providers themselves will ultimately improve member outcomes.
That’s why we’re here.
Logan Anderson, Head of Customer Relations, The Pensions Trust