Anton Padmasiri, Founder and CEO, WealthOS
Change is coming to the world of pensions. The industry faces a challenge regarding the current disharmony between consumer expectations and real-world experience. This dynamic is driving two major trends shaping the industry.
More and more people are opting to use SIPPs to provide financial security in retirement. However, the problem remains that the technology needed to deliver a seamless SIPP user journey has yet to be deployed at the scale needed by the sector—and, most importantly, consumers.
So why are SIPPs becoming increasingly important?
Since former chancellor George Osborne liberalised pensions in 2015, SIPPs have experienced solid growth as more individuals use SIPPs to access pension freedoms. There are now said to be some 1.7m SIPP holders with collective assets worth around £205bn. With the government seemingly encouraging more individuals to become investors and manage their own retirements, it's likely that this growth will continue.
There are other reasons for SIPPs' growth in popularity. In 2012, the government began auto-enrolment into pensions which was phased-in between October 2012 and February 2018. With today's trends in employment, few people now have a 'job for life'. The average worker has around 12 jobs over the course of their career. As such, millions of people have pensions with multiple employers and managing these disparate funds can be a headache.
SIPPs are obviously a useful way to consolidate workplace pensions and combine funds with other investments, such as in property and stocks and shares. The result for the SIPP holder is a solid single source of retirement income - with a range of drawdown options - that enables a good standard of living well into old age.
That's the theory anyway.
Technology fails to keep pace with the growth of SIPPs
Unfortunately, although SIPPs have grown, the market is struggling to evolve a good customer experience, especially in retirement.
This is largely because the sector continues to rely on outdated technology that keeps the various parts of the pensions tech ecosystem locked in fragmented silos. In practice, this manifests itself as a series of pain points in critical areas.
For example, if people want to transfer their SIPP to consolidate their savings into one place, the transfer times can be infuriating. People are now used to real-time payments so the idea of waiting days or even months because providers use a combination of email, fax and post is flatly rejected.
Funding and contributing to SIPPs is also problematic, thanks to outdated payment gateways. These could be easily replaced with more efficient modern tools, which reduce the cost of payments administration and eliminate old ways of working. The goal should be to increase flexibility and reduce processing time.
Another area ripe for improvement is drawdown. Often pension holders have to wait ten or more days to receive their funds when they request withdrawals to meet their retirement income needs.
We all know it shouldn't be like this. Open banking technology and HMRC APIs mean SIPPs administrators should be able to transfer tax-deducted payments to customers in less than a day or two. Despite this being the era of so-called pension freedoms, the systems that administer SIPP funds are anything but liberating.
It's high time for change.
What are the next steps and how do we create a better experience for SIPPs holders?
It's clear that the industry has a great opportunity to modernise.
Through digital transformation, it's possible to offer SIPP holders the kind of user experience they currently enjoy in other areas of their financial lives such as personal banking and borrowing. The key to successful change lies in the deployment of solutions that break down the legacy silos standing in the way of modern user journeys.
At WealthOS, we foresee that some providers will adopt new technologies because they have a culture of innovation. Whereas others will be forced to modernise through regulation.
On that note, it very much looks like the Department for Work and Pensions is going to bring in rules requiring trustees to offer a suite of decumulation products and services that are suitable for their members and consistent with pension freedoms. What products are better suited for this, if not SIPPs? The question is, can providers scale their operation to cater for the potential increase in customer volumes? Can they profitably develop their services and offer more pension freedoms and flexibility to attract such new customers?
Meeting these new requirements will undoubtedly involve adopting new technology.
That's why at WealthOS, we are upgrading pensions with our cloud native digital SIPP technology. We have digitised the end-to-end journey within SIPPs, from accumulation through to decumulation. We have also increased the level of automation and orchestration, so processes that were previously manually executed are now automated.
From a commercial perspective, using a single piece of scalable technology is much more cost-effective than maintaining several tools, which are likely to require constant maintenance and bug fixes. Operational risk is reduced and it becomes easier to automate, which then allows staff to focus on higher-value operational tasks.
Indeed, by adopting modern tools, pension providers can win the battle between customer expectations and experience - and offer dynamic user journeys that are now commonplace in many industries and are increasingly being adopted in financial services.
