DC pension members’ digital journeys must be ‘vastly improved’ to ensure they make appropriate decisions at retirement according to a new report from Hymans Robertson.
The consultancy firm warns that there are raft of issues that providers need to consider if members are to minimise future retirement funding risks.
It says this issue is becoming increasingly important as DC pensions become the main source of income for the majority of retirees.
Hymans says that there are product design opportunities and technical solutions that providers should be utilising in their digital products that will give the consumers appropriate financial support.
The research showed that members value certainty and flexibility but are not well placed to achieve this, particularly when assessing longevity risk.
Hymans says providers must use technology and enable members to utilise a range of different products to meet their needs through retirement. This will includes a mix of pension drawdown, annuity, savings vehicles and property.
By implementing smarter digital guidance journeys, providers can help individuals to navigate the complex decision-making process of using their pensions and other assets to meet their needs and manage their risks in a holistic way.
It says personalised digital retirement journeys should enable many members to engage with their retirement decisions through a non-advised channel, supplementing the advised route for those who have more complex needs and access to advice.
The research also outlines how implementing digital tools could help tackle social inequality as those with smaller pot sizes often have lower awareness of their retirement options and are therefore less likely to make decisions that maximise the income they could get.
Around four out of five people with pensions pots of over £250,000 had an awareness of annuities and drawdown, that fell to around half of people with pots less than £100,000.
Hymans says that digital engagement through data aggregation, guidance algorithms and a smart user experience can enable providers to close this gap, by offering clear guidance around financial services and decumulation options for all consumers.
Hymans Robertson head of digital wealth, Paul Waters says: “Consumers need the right support, guidance and protection today; they cannot wait until the future. As an industry that is responsible for delivering good outcomes, a slow evolution in the sophistication of products and support available for individuals to manage their retirement income needs is not enough.
“There are key opportunities for providers to help individuals improve outcomes through retirement. Firstly, by taking a more holistic approach to retirement planning and helping individuals understand how their various assets could be used to help them achieve their retirement plans.
“Secondly, by providing guidance on sustainable income drawdown levels on an ongoing basis through an individual’s retirement, reflecting both their personal circumstances and changing market conditions.
“Finally, once pensions dashboards are fully operational, building in the ability to have all pension pots in one place allowing for easier assessment of their overall position and a smoother consolidation process.”
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