Pensions Dashboard must support post-retirement decumulation decision-making as the line between pre- and post-retirement is irreversibly blurred, find new Dunstan Thomas Baby Boomer study

2 October 2017

Opportunities for engagement with customers are being missed in the run-up to declared retirement age and even beyond State Pension Age (SPA), according to retirement solutions provider Dunstan Thomas which commissioned a comprehensive nationwide study of Baby Boomers aged 54-71 years old over the summer.

Despite clear evidence of seismic shifts in Baby Boomers’ retirement plans, more than half (51%) of 54-71-year olds have not informed their product providers of changes in planned retirement age, with 49% not receiving any prompts from their provider. Only 9% of providers invited Baby Boomers approaching retirement to update their retirement age prediction; while 11% of customers informed their insurer without being prompted to do so.

These findings indicate that providers and fund managers need to work harder to communicate the value of planning asset allocation well ahead of decumulation. Fund managers may also need to design more funds for holding through the SPA and well beyond.

Pension Freedoms choices communications offers big opportunity for engagement & guidance

When asked how soon before retirement Baby Boomers would consider reviewing their pension-held investment/assets to reflect DC pension decumulation choices (listed as encashment, purchasing an annuity or some form of income drawdown), nearly a third (29%) of Baby Boomers simply didn’t understand the options that are now open to them from age 55 under new Pension Freedoms rules. This surely represents a major opportunity for engagement and possible guidance as providers’ DC policy holders approach age 55.

One in 10 are leaving the asset selection decision-making entirely to their provider with a view to buying an annuity from them; while 19% are planning to look at adjusting their portfolio 12-months before decumulation, which may well be too late. Just 7% planned to review asset and risk exposure levels at least five years before beginning drawing their pension.

Digital Wake Up Packs

The pensions wake-up pack has taken a great deal of criticism of late, but it is still responsible for prompting one in 10 (11%) Baby Boomers into actively planning for retirement, the survey found. The regulator’s rule on the wake-up pack used to be that it should be sent out four to six months before planned retirement date, or when a customer requested a retirement quotation. However, our findings suggest that prescriptive rules like this no longer serve the customer well.

For example, of those who received a wake-up pack, we found 11% of wake-up packs were simply arriving too late to help customers – they’d already had to make retirement decumulation decisions by the time the pack arrived. On the flip side, 59% of the packs were received more than 12-months prior to a retirement. The reality is that the wake-up pack must morph into an online forum or portal which invites customers to look at their pensions savings early, decide if they need to make changes, perhaps with the help of scenario planning and projection tools, and then eventually make changes to their policy and underlying asset-base online.

Providers need to think about how they can increase the percentage of customers they engage in a more interactive retirement planning discussion as the wake-up pack ‘goes digital’ and interactive in the next few years. This is particularly important because so many Baby Boomers don’t yet understand the new choices they have been given because of Pension Freedoms. Furthermore, as providers ratchet up their customer engagement plans they will need to ensure they hear about key ‘life events’ which might trigger retirement decision-making – one in five (19%) of Baby Boomers who have actively planned for retirement, began doing so because of a major life event such as being made redundant, experiencing a period of ill health, or receipt of an inheritance or windfall.

Right now, just 3% of Baby Boomers which are actively planning for retirement are being activated to financially plan through an online retirement tool. This figure is only going to grow as tools are improved, the Pensions Dashboard goes live and other online resources are launched. Much of the battle ground for customer engagement over the next few years will be fought online - in increasingly sophisticated and attractive portal environments. Without beginning to make these changes now, dissatisfaction with providers pre-retirement communications will only increase. Right now, 17% of Baby Boomers with a private pension think their provider’s communications in the run-up to retirement is poor. That figure will swell markedly as more digitally-active generations approach retirement age.

Adrian Boulding, Director of Retirement Strategy, Dunstan Thomas, said:
“There is a real opportunity here for some providers to show leadership in establishing pre-retirement digital communications before the regulator forces smarter digital communications standards on the industry. Indeed, if they move early, any best practice which they establish may will help to shape inevitable regulation in the future.”

Pensions Dashboard offers retirement planning panacea for nearly half of Baby Boomers

Dunstan Thomas’ survey also sought reaction to the idea of the Pensions Dashboard which is due to be delivered by 2019. One in five Baby Boomers (22%) said they would use the Dashboard to assess whether “I’ve got enough in my pension pots to hit my retirement income target”. Nearly as many (20%) were already in decumulation mode and wanted to work out “How much I can draw monthly out of my income drawdown plan from my pension without running out of money too quickly”. A smaller group (15%) wanted to use it to run comparisons between different decumulation options – cashing it in and putting it into an interest-bearing bank account, selecting an income drawdown or annuity scheme. Others (13%) wanted to use it to “work out how much I need to set aside for an adequate long-term care pot”.

Adrian Boulding, Director of Retirement Strategy at Dunstan Thomas, added:
“These findings confirm our view that consumers will not take kindly to a Dashboard that does not support post-retirement decumulation decision-making as well as pre-retirement accumulation and at-retirement decision-making. The line between pre- and post-retirement is irreversibly blurred and dashboards must reflect this.”

Younger Baby Boomers are doing a great deal more on mobile devices than oldest Boomers

Younger Baby Boomer aged 54-59 years old are running a great deal more of their lives on mobile devices than 66-71-year olds. For example, 52% of 54-59-year olds use their mobile for personal emails, whereas 40% of 66-71-year olds use their mobiles for this purpose. 28% of 54-59-year olds use mobiles for their banking, whereas only 12% of 66-71-year olds use their mobiles for this purpose. Also, 20% of younger Boomers use their mobiles for online shopping, as opposed to only 9% by 66-71-year olds.

Baby Boomers in favour of doing retirement planning online. Email favoured over telephone support for reaching providers

Nearly two-thirds (61%) of all Boomers agree with the idea of doing more research into financial and retirement options and products online. 19% are prepared to do retirement financial planning online, including participating in online web chats and viewing educational videos online. Emails are the most ‘sufficient’ way for Boomers to communicate with their pension providers: this channel gets a 38% ‘sufficiency rating’, as against smartphone apps which gets the lowest rating – being considered sufficient by just 13%. Surprisingly, even Baby Boomers are turning away from bank branches as a source of reliable financial advice/guidance linked to retirement - 44% disagreed with the idea of going into a bank branch for retirement planning guidance. Even more Boomers – 46% - disagreed with the thought of getting more telephone-based retirement planning guidance services from providers.

Instant mobile ‘retirement income health’ alerts favoured

There was a generally positive reaction to the idea of being sent instant alerts to their mobile if changes happen which might affect their pension pot in some way. For example, if a new tax policy change is likely to impact their retirement pot 60% of Baby Boomer respondents with a mobile and private pension plan want to be alerted of that instantly. 47% want to be alerted if their portfolio has become unbalanced (i.e. overweight in a specific risky asset type); while 45% liked the idea of being alerted instantly if an asset has gone up or down by 10% in a given quarter. Interestingly, MiFID II which takes effect on 3rd January 2018, demands that Depreciation Reports are issued by asset managers if an asset that they manage has gone down by 10% or more. The idea of instant actionable information alerts to mobiles was generally given strong backing by Baby Boomers.

Adrian Boulding again:
“It’s encouraging that there is such a positive reaction to the idea of being alerted automatically if an investment has gone up as well as down. Experienced investors say it is often more valuable to take profits following surges in values than to sell up as assets are falling. These alerts could form a key plank of providers’ customer engagement plans – keeping them thinking about building their retirement savings pots and stressing the value of guidance where alerts could otherwise trigger poor decision-making.”

Boomers highly ‘digi-active’

Overall, Boomers spend over three hours a day online or 23 hours per week, although a digitally-hyperactive 13% spend six or more hours per day online. Three-quarters (75%) own a smartphone, 73% a laptop, 59% a tablet and 28% an eReader. 94% own their own desktop personal computer. Two-thirds (67%) of 66-71-year olds own a smartphone but nine out of 10 (92%) of 54-71-year olds own a mobile phone of some sort.

Chris Read, Group CEO, Dunstan Thomas Holdings, summarised some of the implications of the nationwide Dunstan Thomas Baby Boomer Retirement Planning Study: “Many of our findings should give providers food for thought in terms of where they have opportunities to engage with their customers pre, at and once in semi- and full-retirement. Retirement savings is a far less certain world for Baby Boomers retiring in their droves over the next 15 years or so. Nearly half of them are dependent on less generous DC pensions. They now have more retirement income options at-retirement. They’re pushing retirement decision-making out – with nearly 1 in 5 already moving into a semi-retirement state which is likely to extend for several years.

“They are less likely than ever to have access to regulated financial advice. All these factors combined create a massive opportunity for providers to engage with their customers and help them navigate these changes using new digital tools, portals and platforms. If they don’t grab this opportunity others will, and the regulator will force modern, smarter consumer communications requirements on them anyway.”

For a full report of findings, please go to Dunstan Thomas’ website here

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