Private Pensions : The Dirty Little Secret

Insurers and asset managers are leaving growth on the table by focusing on yesterday’s solutions

Since 2012, reforms related to private pensions in the UK have fundamentally changed the retirement savings landscape. From autoenrollment to pensions freedom, the level of complexity consumers face when it comes to preparing for life post work has never been greater.

It’s true that helping to prioritise retirement savings and liberalising options for accessing those funds can help people with varying needs and circumstances live more fulfilled lives into older age. But a perfect storm of lack of engagement and understanding, insurers facing regulatory pressure and shrinking margins and a squeeze on consumer finances in general mean that the promised benefits of pension reform haven’t materialised. In fact, it seems just the opposite is happening…

  • According to the Financial Conduct Authority, 170,000 consumers have paid too much tax taking advantage of freedoms…
  • Retirees have been duped out ~£200m by scammers
  • Non-advised retirees are paying over 3x the fees of their advised counterparts and many people taking advantage of drawdowns are essentially defaulting to the simplest, rather than the most relevant options


The Secret

Insurers (at least in the retirement space) are having a relative bonanza:

  • Through 2021, income from retirement products, driven by pensions freedom reform is expected to grow significantly (15%) – the highest across the insurance market
  • Individual pensions and SIPP is expected to be the second biggest source of cash generation in the sector (driven by auto-enrolment and mandatory matching)
  • This growth is driven by the mass market and mass affluent consumers


Insurers are benefiting from complexity and uncertainty. Consumers, on the whole, are not. Reforms increasing the flow of capital into private pensions enhances cash generation and the lack of consumer engagement and advice for the mass market means they win through inertia, regardless of what’s best for consumers. There isn’t really an incentive to wake consumers up to how they could be optimising their approach to retirement savings…

Lack of Consumer Engagement

…and consumers are asleep at the wheel. While pension reforms have increased employee engagement in their retirement benefits, 80% of employers believe their employees are not saving enough for retirement.

Only 12% of British employers are happy with the level of employee engagement with their retirement benefits. No wonder that while the number of people invested in a workplace pension scheme has almost doubled since 2012, contributions (among employer and employees) cluster around the minimum requirements. In many respects, these are zombie schemes with employees (and some employers) operating on autopilot.

Illusion of Benefits Today

One reading of this situation from insurers is that this is an enviable position. A captive market giving monthly contributions on autopilot and, without proper advice, being very likely to turn that into an annuity or another type of drawdown with your organisation. It’s a case of don’t kill the goose that lays the golden egg. The likes of high street retailers and carmakers would love to be so lucky.

However – this is an untenable situation. Consumers are becoming more discerning about their choices. This is increasingly true regarding where and how they invest their money. And just like in adjacent categories, where disruptors have taken advantage of stagnant value chains where consumers were losing out – it’s only a matter of time before the trend hits retirement savings. An ageing society only makes such disruption look more attractive (and necessary).

The opportunity

So what is there to disrupt? Management consultancies have been promoting the idea of insurers becoming the “Financial Home” of pre and post retirees for years. “Holistic Retirement Propositions” based on meeting a broader set of needs pre and post retirement has long been identified as a growth opportunity for big insurers. Some analysts estimate the value of these additional services and products at £100Bn in shareholder value by 2021. But the inertia behind extracting value from yesterday’s business models has (so far) proven too difficult to overcome. Why fix something that, on the surface, ain’t broken?

While insurers have invested in tools targeted at pension transfer and consolidation, no one has been able to create a compelling proposition with advice at its core. In fact, that FCA finds that even mandatory advice around pension transfer is suitable less than half of the time. While it’s true that uncertain regulatory environments and tricky distribution challenges make it difficult for insurers to innovate in this space, it’s all too clear that the industry sees more downside in more informed, engaged and empowered consumers than upside – the industry’s dirty little secret.

The organisation with the scale and the ambition to shift this paradigm and benefit from first mover advantage will not only see a disproportionate share of this opportunity – but they will also gain a major brand opportunity to be a true advocate for consumers vs. their peers.

So, what strategies should an insurer employ to become that partner to pre and post retirees?

Keys to success

Consider retirees’ lives, not just their finances: think about the whole person, and their broader hopes and anxieties about retirement when developing propositions. In the same way that Amex designs for small business as opposed to creating point-in-time credit solutions, so can insurers think about how people’s lives and underlying needs evolve from pre-retirement through to end of life to create more compelling propositions.

Bringing marketing/insight in early on: to ensure products, services and experiences are clear, targeted and understandable from a consumer perspective, you need to bring in the voice of the customer (and implications for how you frame and communicate your proposition) early on in the strategic planning and innovation process.

Shift the value perception of advice: Advice is the key need and key hurdle to selling in a broader proposition among this disengaged audience. However, about 40% of people do not want to pay for advice regarding ISAs or pensions. In order to get consumers to make better retirement decisions (and becoming more engaged and committed to your offer) you must reframe the value of advice through clearer communications and/or products that position the cost of advice in new ways. STASHwealth charging a lump sum for consultation and creating a financial plan before transitioning to a management fee is in an interesting example of thinking differently about designing and packaging advice for a mass affluent audience.

Leverage partnerships: Insurers are experts at product development and pricing, but struggle when branching out to meet broader needs. Once consumers’ retirement needs are clear and you’ve overcome the hurdle of advice, it’s important to understand where you’re best-placed to solve those needs and where bringing in a partner as part of your proposition is more cost effective and better for the consumer.

Make digital personal: While seamless, intuitive and clear digital tools and services will be critical to capturing this opportunity, it’s important not to discount the role of human interaction when it comes to partnering with consumers across their retirement journey. Preparing for and thriving during retirement is undeniably personal and identifying where and how access to knowledgeable people can help differentiate your offer from the latest digital trend.

The £100bn opportunity is real and waiting to be captured by the insurer with the scale, clarity of vision and bravery to do so. At the same time, an increasing number of people are losing out because they don’t know what options exist and are best for them. As the Pension Revolution continues to disappoint, the risks in standing still and the rewards for grasping this opportunity continue to grow. The only question is who will be the first company to expose the industry’s dirty little secret and become the true and trusted partner to the UK’s retirees.