The introduction of auto-enrolment alongside pension flexibilities, introduced by George Osborne in 2015, has resulted in an unprecedented change in the defined contribution (DC) pension market. Contributor David Bird, Head of Proposition Development at LifeSight – Willis Towers Watson

As we begin to gather significant data on consumer behaviour when it comes to pension decision making, we can see some clear areas for improvement to help ensure members make the most of their pension savings.

The advice gap
Whilst it is reassuring that the highest rates of regulated advice use are from those that go into drawdown – 69 percent according to the Financial Conduct Authority (FCA), it is weighted towards those with larger pot sizes. Overall, accessing pension pots early has become the norm. The FCA found that 72 percent of pots that have been accessed are by consumers under 65 – most choosing to take lump sums rather than a regular income.

Although giving consumers control over their pensions is a step in the right direction, for many, suddenly being faced with such a significant choice has caused problems. One the biggest being the lack of proper financial advice when they come to make these decisions. In fact, in the summer the FCA issued a warning about a surge of people taking advantage of pensions freedoms without taking advice. So what can we do as an industry to bridge the gap?

Using technology
In order for businesses to bridge the advice gap that currently exists, technology must play an important role. Employers concur, the Willis Towers Watson Finance Director Pension Survey found that 43 percent of those surveyed predict more guidance and advice using technology. A small number of providers, including LifeSight, are creating more user-friendly online portals, something we are familiar with in other places, for example, the banking sector.

Giving consumers access to their pension information on the move in a clear, easy to use way means they can check the status of their savings when it suits them and better understand their journey. Showing savers their retirement outcome using a relatable metric enables them to make smarter financial decision and giving them the context to decide when they need more expert advice. This increased engagement will lead to more proactive rather than reactive savers.

Effective communication for effective advice
There are a range of advice options for consumers at different price points, from one-to-one guidance and advice sessions to larger pension workshops and Pension Wise’s free service to the public and group pre-retirement workshops. But it is up to pension schemes to make sure their members are aware of what is out there. Effective and engaging communication strategies throughout a member’s journey is a clear way to achieve this.

Personalisation is key. No two people are the same and the pension sector is increasingly moving away from a one size fits all model. In order to be as effective as possible and work in the best interest of savers, pension communications need to be tailored to individual customers’ wants and needs. By using tailored communication, businesses will successfully engage their employees.

Once a dialogue is built up between the pension scheme and the member, this will not only build up trust (another element found to be lacking in the Retirement Outcomes Review), but members can be nudged to seek advice at the time they need it most.

The two-year anniversary of pension freedoms has made it clear that there is still work to be done to ensure consumers have access to proper advice before they make big decisions about their retirement. By using technology to increase engagement and drive effective communication, organisations can ensure that pension freedoms benefit everyone in the right way.