If we feel this way as industry insiders, imagine how the average member feels. Some will have recently been auto-enrolled into a pension scheme for the very first time and may have seen the “We’re all in” adverts from the DWP.
They’ve then been told by the previous Pensions Minister that they can buy a Lamborghini when they retire following the introduction of Freedom and Choice in pensions, which itself has resulted in yet more information and jargon to explain to members.
Now they’ll be seeing the adverts featuring Workie (whatever kind of creature it is) which, whilst aimed at smaller employers, will have again raised the profile of pensions in the public eye.
With a higher public profile comes press and television coverage, which generally paints a negative picture of pensions, using words like confusion, chaos and scams. Many members may even have been contacted by the pensions scammers featured in these programmes, being offered a free pension review and the chance to unlock their pensions now.
Whilst all of this coverage will undoubtedly have raised awareness and created some level of engagement, it would be understandable for the person on the street to be a little confused and possibly wary about pensions. They will likely be asking: What are my options? How should I invest my contributions? Can I trust my provider? Who can give me advice? What’s the difference between advice and guidance? What exactly is an UFPLS?!
Whilst all of this change has been happening, members of pension schemes continue to have questions, continue to retire and continue to have expectations about what their pension scheme administrator should be doing for them and how quickly they should be doing it.
These expectations are coloured by experiences of dealing with other service providers. George Osborne, when announcing the pension freedoms, drew a parallel between pensions and bank accounts. Whilst this comparison is unhelpful in many ways, perhaps it isn’t a bad place to start when comparing member experiences.
Research from the BBA suggests that banking using smartphones and tablets has become the leading way for customers to manage their finances, overtaking in-branch transactions and even the internet as the most popular way to bank.
Transacting in this way also provides instant gratification. These days, consumers want, and expect, immediacy when dealing with service providers, whether this is by phone, email, online or web-chat. This is where the pensions industry has traditionally been slow to respond.
There is one, often-overlooked, advantage that an individual has over other service industries that a pension scheme member doesn’t have. That is the ability to take their business elsewhere if they are unhappy with their experience.
Fed up with your bank? Switch. Found a better car insurance deal elsewhere? Switch. Members of occupational pension schemes who receive a poor service do not have that luxury as the Trustees of their scheme have appointed the administration service provider. Does this mean that pensions administration should be held to different standards than other service industries? It shouldn’t. However, it’s not always that simple.
Communication, communication, communication…
Occupational pension schemes, particularly defined benefit schemes, are, almost without exception, complex beasts with decades of history to contend with.
When many pension schemes were established, member data was handwritten on member record cards and calculations were performed manually with pen and paper. Although computerised records and The Pensions Regulator’s guidance on record keeping have both contributed to improving the member data, many schemes are still a long way from having the confidence that their data is clean enough to put online for members to see, let alone provide automated calculations.
It should therefore be no surprise that the majority of schemes still don’t have a member website, and many that do only provide static information.
If, as has been proven, people are now using online and mobile technology to interact and transact with many of their service providers, the expectation will be that they should be able to do so with their pension scheme.
Trustees should be asking their administrators what online services can be made available to their members, even if this is simply to provide information about their options and signpost where they can go for guidance and advice.
If we’re looking at how we’re communicating, we should also consider how much we’re communicating. Twenty years ago, a member of a defined benefit scheme with AVCs approaching retirement would receive a simple letter, often only one page, setting out their retirement options.
In many cases, that was it. They would choose an option, provide their bank details and their pension would be put into payment.
The same member retiring today will now receive a chunky envelope thudding onto their doormat which contains several multi-page documents all with the noble intention of explaining what their options are and what they need to do next.
To add to the volume of information members are now receiving, the fondness for jargon is still a major issue in the pensions industry. UFPLS, FAD, BCE, LTA, AA, PCLS – all of these terms are meaningless to anyone outside the pensions industry (and some inside it) and all need to be carefully explained to members.
To make matters worse, in the interests of simplifying things for members, providers will choose to describe the same options in different ways. For example, depending on where you look, an annuity is described as retirement income, secure income, guaranteed income or income for life.
For the average person who may have several pension scheme entitlements, this can’t be anything but completely overwhelming. Having more options and the freedom to choose is great, of course, but how do we help members through this, and how much can an administrator realistically do for a member?
When does information become guidance, and guidance become advice; and what about robo-advice?
In the mind of a member, the person who provided the information should be able to help them understand it. They will often call the administration team after receiving a letter setting out their options asking what they should do.
As administrators, we are at pains to point out that we cannot provide financial advice, only information. This can be difficult for a member to understand.
Until Pension Wise, the only real option for a member unsure what was best for them was to seek independent financial advice, which could be costly and often unnecessary.
Nowadays, with the proliferation of options, members need more help in deciding what is right for them. Where DC or AVC funds exist, best practice has established that administrators should clearly signpost the free guidance that is available to everyone as a minimum measure.
However, to go back to the initial point, administrators must all have the knowledge and expertise to talk a member through their options in a clear and consistent manner – otherwise, what are we here for? The administration world is eagerly awaiting roll-out of the PMI certificate in pension scheme member guidance which should be adopted industry-wide for those in a member-facing role.
Pensions will continue to be a moving feast for everyone involved, whether provider or member. This is surely unavoidable in a world where pensions consultations are commonplace. There are always burning questions to be answered: Will we see major tax reform announced as part of the 2016 budget? Will the Pensions Minister’s current consultation on easing legislative burdens that make life difficult for administrators and do not benefit members make our lives any easier? Who knows? And who knows what questions we will have to answer this time next year, or the year after?
What we do know is that members will continue to look to administrators for answers. It is our responsibility to do the best job we can in explaining complex information in an easily understandable and non-threatening way.
This can only be achieved through making the best of use of the available technology and ensuring that our administrators are knowledgeable, well-trained and comfortable with the ever-changing pensions landscape.