Test of relevance: Succeeding with consumers and society’s financial needs
20 February 2019
As society, the economy and welfare change, so do people’s’ financial lives and responsibilities. As a result, expectations of the financial services sector are changing. The sector has a vital role in financial inclusion, ensuring access to financial solutions and in meeting evolving customer needs and expectations.
In UK Life & Pensions: A roadmap to succeed in a fast-changing sector, PwC looks at why creating solutions capable of meeting these shifting demands is much more than a commercial imperative, rather it is a matter of relevance and trust, both critical in sustaining the industry’s licence to operate.
Pension and resilience gaps
As people live longer, their retirement and care needs are increasing. Yet a combination of insufficient savings, pension provision and awareness of how much is needed to fund later life means that the UK’s annual pension savings gap (how much more people need to save between now and 2057 to achieve an adequate standard of living in retirement) is an estimated €365 billion a year.
Factors such as debt, zero hours contracts and diminishing job security have also impacted people’s financial resilience and their ability to put money aside for the future
A combination of lower pay and savings, factors which are in turn significantly influenced by caring responsibilities, means that women are especially at risk. This was highlighted in recent reports by the Chartered Insurance Institute and the Financial Conduct Authority’s (FCA) Joint Pensions Strategy with The Pensions Regulator.
More broadly, the changing make-up of society has implications for retirement provision: from an increase in single parent and cohabiting couple families, rising maternal age, an uptick in the divorce rate of people in their 50s (the so-called ‘silver splitters’) to more long-term carers and a decline in home ownership some of the most vulnerable people are also the most underinsured and have the lowest level of savings. These include people on low incomes, self-employed workers, single parent families, young people and people with long-term illnesses.
In regulators’ sights
The G20 has now made a clear link between financial inclusion and financial stability, highlighting the extent to which financial services’ role in society is as important as capital in its licence to operate, and the imperative of financial inclusion to the economy.
Within the UK, the Government is taking steps to address financial inclusion and society’s financial wellbeing. In line with this, the FCA is focusing closely on the approach to consumers: financial vulnerability, business practices and barriers to access as part of its mission to secure good customer outcomes and prevent ‘harm’. Recent regulatory developments such as the Insurance Distribution Directive and Markets in Financial Instruments Directive (MiFID II) have also raised the bar for meeting customer needs and ensuring outcomes align to their best interests.
For the life and pensions sector, auto enrolment has simplified and opened up access to workplace pensions for employees earning over £10,000 a year, however the Pensions Freedoms have made navigating retirement more complex for the majority. As the FCA’s Retirement Outcomes Review highlights, many customers are unable or reluctant to pay for or know how to access appropriate advice, heightening the industry’s exposure to conduct and reputational risk.
Closer to customers
Inclusion and trust are likely to be as important as technology in meeting customers’ changing needs and expectations. Indeed, they’re intrinsically linked. Digital engagement and distribution are crucial in meeting consumers’ demands for simpler and more relevant and accessible products. In turn, trust is essential in convincing customers to share their valuable data.
So how can life and pensions businesses strengthen relevance, inclusion and credibility in these changing social and economic times?
1/ Enhance financial awareness and relevant customer engagement
A top priority has to be engaging with customers, and finding ways to reach people in a meaningful way according to their circumstances and lifestyles. Make the most of digital connectivity and channels that form part of their normal day-to-day lives to engage with a broader customer base, including under-protected and uninsured households.
2/ Focus on customer need rather than product push
Harness advances in profiling, including artificial intelligence, to develop tailored solutions for customers’ risks in life. Break down siloes to deliver for the customer and ensure personal contact is available when wanted.
3/ Adapt to the customer journey
Ensure the customer journey is clear and meaningful, designed in a way that contemplates the reality of people’s lives to provide for their best interests. Develop solutions that don’t just offer savings and protection, but also respond in a supportive way to life events such as illness or divorce.
4/ Partner with FinTech to enable financial capability
Equip customers to own their financial futures. Harness innovative apps that help customers develop a better understanding of their financial wellbeing needs, plan for the future and boost saving and resilience.
5/ Enhance your employer financial wellbeing
Develop meaningful, engaging employer financial wellbeing tools for your people, and your clients. Consider pensions and employee benefits that improve employees’ financial engagement and capability, choices and outcomes. Think beyond ‘communications’ and remote tools, and how to capture the attention of various employee communities. With many lost employee hours to financial stress, enabling your people’s financial wellbeing will enhance your business too.
6/ Work with policymakers, regulators and employers
Help raise public awareness of financial wellbeing as part of your social contribution. Collaborate with organisations, society, clients and staff to talk about money.
 The ‘pensions savings gap’ is how much more people who retire between 2017 and 2057 need to save each year to fill the gap between the pension they can currently expect to receive (from a possible combination of state, workplace and private pensions) and the amount people are likely to need for an ‘adequate standard of living’ in retirement. An ‘adequate standard of living’ is calculated according to a replacement rate, which is the percentage of the income (after tax) that you earn just before you retire that you will continue to need in retirement. Typically, people do not need 100% as by this stage many people have paid off their mortgage and no longer need to save for their retirement.