Drawdown pension providers have started the new year finalising their solutions to meet the new Investment Pathways regulations that are effective from today.
Non-advised customers who are entering drawdown or are transferring in assets already in drawdown, must be given four options to decide the investment strategy for their retirement savings. The four options are:
Option 1 – I have no plans to touch my money in the next five years
Option 2 – I plan to set up a guaranteed income (annuity) within the next five years
Option 3 – I plan to start taking a long-term income within the next 5 years
Option 4 – I plan to take my money within the next 5 years
I want to discuss the opportunities available for providers to consider beyond just implementing these options. Improving customer journeys and digitisation can have a positive impact for the customer, and maybe this is where robo-advice as a supplementary service could make a difference, not to replace full professional advice but a middle point between full and no advice. All too often implementing regulation becomes a tick box exercise without considering the best outcomes for customers.
In my view, Investment Pathways provides minimal improvement to help customers make better choices without knowing anything about their holistic financial position, their retirement aspirations or supplementary retirement income they may have that full professional advice explores.
Retirement is complicated. Everyone should be aiming to make it much less so in the areas more in our control. This includes the regulator who are continually enforcing changes to makes things better for the customer, when in reality this ends up being another item providers need to adhere to resulting in lengthy and complex outcomes.
Focus on the Customer Journey
In the lead up to age 50 and again at age 55 the customer is already sent lots of documents and investment pathways is going to be yet another piece of information to add to the list. For example, at age 55 the customer will receive a pensions summary, risk warnings, factsheet and retirement options and now where an adviser is not present, investment pathways. Consideration for the customer will help to not overload them and to ensure they understand the information being provided. All these journeys should be reviewed, with the addition of investment pathways, and reviewed as one journey. Consider the experience the customer will have and simplify it.
Customer engagement in pensions is a problem. Trying to get customers to think about their retirement is a problem. Grab their attention, nudge them to consider the wider aspects that are important to try to encourage them to think these through and help make the right decisions for themselves. Earlier engagement could be supported further by employers offering training in conjunction with their auto-enrolment schemes. This could highlight the importance of considering retirement objectives, contributions levels and to promote the benefits of regular reviews. Further support from the Government to introduce learning in higher education establishments prior to becoming part of an auto-enrolment scheme could also help increase awareness.
Make it clear where further guidance and support is available and how this can be accessed. At any time, the customer can seek professional or robo financial advice.
Overall, keep everything simple. Make the journey clear and easy to follow, cut jargon from communications and don’t overload with endless documentation.
To further improve the customer journey a digital solution that is easy to use, engages customers and provides tools that can bring retirement to life would be a big advantage to customers.
Interactive online tools, such as projection tools, are powerful and engaging allowing a customer to see the impact certain changes could have on their retirement funds. These types of tools should be more accessible to people to help them decide what their objectives are. The tools should be prominent on websites and not just as part of a journey or hidden away in hyperlinks. All tools should have a clear purpose with instructions that will help a customer understand how to use it and what to use it for. Pensions are for everybody so the tools should be usable for everyone, compliant with accessibility requirements, no jargon and easy to use.
Customers need a clear digital journey, with clear objectives, simple steps and easy to understand content written in a way that is not full of jargon, reverts away from overloading information whilst providing more information when it is required.
Investment pathways could open an opportunity for providers who offer robo-advice to differentiate their service. There have been issues with scale and the cost effectiveness of the robo solutions implemented in the past. Where the customer interaction is happening anyway, providers can use this to promote the benefits of a robo-advice journey.
Robo-advice can fill the advice gap offering a cheaper option than the traditional professional advice route. Providing this service with an online journey that flows through from advice to completion would be a positive outcome for customers who do not want to pay for full professional advice.
It will be interesting to see the developments of pathways, what providers have delivered as part of their solution and whether the regulator feels confident that non-advised customers are making better decisions. I’d love to know what you think.
At Simplify we have experience in developing customer journeys and optimising processes and are always happy to help.
Get in touch if we can help your business.