Innovation needed to support 'underserved' DC members

More innovation and holistic support is needed to future proof defined contribution (DC) products and help members make decumulation decisions, Hymans Robertson has said.

Its report, The Decumulation market: opportunities for providers, found that members have different levels of understanding when it comes to decumulation, as those with lower pot sizes have "significantly" lower levels of awareness of retirement options.

Indeed, the research found that just over half (59 per cent) of members with pot sizes up to £100,000 understood the communications sent to them from their provider, compared to three quarters (76 per cent) of those with pot sizes above £250,000.

Furthermore, only 62 per cent of those with pots up to £100,000 felt they had access to all the information they need to make important decisions about their retirement, compared to 81 per cent of those with pots over £250,000.

The research also found that over a fifth (23 per cent) of those with retirement pots less than £100,000 felt confident deciding which financial products suit their needs, increasing to 52 per cent for those with larger pension pots over £250,000.

The report suggested that providers will need to take a more innovative and holistic approach to meet these varying needs, particularly ahead of the Financial Conduct Authority's new Consumer Duty rules, which will require providers to recognise members’ differing needs and serve them no matter their pot size.

In particular, the research highlighted a "significant opportunity" to serve members better by making use of online tools to meet their needs, noting that there are "large segments" of the retirement planning market that are unlikely to access traditional advice.

Hymans Robertson explained that online tools could help assist customers throughout the decumulation process by overcoming both the barrier of cost and the inefficiencies of generalised communications.

Online tools were also a popular option amongst savers, as research undertaken by Hymans Robertson found that 31 per cent of those who aren’t yet retired think online tools would be the best form of receiving information about retirement planning.

However, there was some apprehension, as 42 per cent of respondents said that they would have concerns over entering their pension information online, highlighting the need for providers to build trust with customers through brand awareness and communications.

Commenting on the findings, Hymans Robertson head of products, Karen Brolly, emphasised that consumers need the right support, guidance and protection today, stressing that "they cannot wait until the future".

She continued: "As an industry that is responsible for delivering good outcomes, providers have so much opportunity to evolve and deliver products that help DC pensions members better navigate their options.

“Our research has shown many individuals feel underserved by the information they receive at the point of retirement, and this impacts how confident they feel when faced with important decisions. As the retirement market continues to expand, the need for tailored guidance for the different circumstances’ individuals face is underlined.

“Ideally, individuals should be able to have retirement plans encompassing a range of different products like drawdown, annuity and other savings vehicles.

“And, while we recognise that they won’t be solutions for everyone, we believe that existing products such as equity release or newer ideas like longevity pooling could form part of the broad range of solutions.

“The role of strong communication is a thread that runs throughout the FCA’s new Consumer Duty regulation and is seen as a means of truly serving and empowering the consumer to enable them to make good financial decisions for their future.

“It also explicitly asks for providers to ensure they provide good communications, that are easily understood, tailored to customer needs and delivered at the right time to help them to make financial decisions. Providers need to ensure these regulations are met when developing new products."

Brolly also clarified that although some of the developments highlighted by the report will need to be achieved over a longer time scale, there are key breakthroughs providers could push for now and immediately support members.

“Firstly, once pensions dashboards are fully operational, building in the ability to have all pension pots in one place would allow for easier integration and a smoother consolidation process," she stated.

“Secondly, providers and regulators could give individuals more information around what sustainable income levels might be for their specific pot size and retirement choices. Finally, there is an understanding that everyone will have a different retirement journey.

“Not only should providers take a much more holistic approach to retirement planning, but they should also give individuals more ways to consider all of their assets with a view to achieving their retirement income needs.”

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