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Technology Critical to Reducing Pension Auto-Enrolment Opt-Outs

Tony Tarquini, Director of Insurance, EMEA, Pegasystems

The increase in the minimum employer contribution to auto-enrolled pensions from 1% to 2% in April 2018 represented an unmissable opportunity for the UK workforce to prepare for a comfortable retirement. However, the simultaneous rise in the minimum staff contribution from 1% to 3% has led to industry-wide concern that auto-enrolment opt-outs will grow, threatening the future of insurance companies.

Despite these concerns, there is no doubt whatsoever that technology can be used to educate, cross-sell, upsell, nudge, influence and encourage customers to understand the need to save, both for a rainy day and for their old age.

Millions of vulnerable consumers

Since auto-enrolment was introduced in 2012, nearly 10 million workers have been auto-enrolled in pensions according to figures from The Pensions Regulator. However, data released by the ONS as part of its Wealth and Assets Survey in August found auto-enrolment has not led to a noticeable change in attitudes towards saving.In the period July 2016 – December 2017, just 17% of 16 to 24s felt that they knew enough about pensions to make decisions about saving for retirement. When taking into account all non-retired respondents, less than half (42%) felt they knew enough.

Insurance group Zurich’s own research found some alarming statistics of its own. The company recently discovered 24% of adults have no savings to fall back on and that 17.6m people in the UK would struggle to recover from a financial shock or loss of income. This suggests that regulatory reform isn’t enough to alter consumer behaviour and highlights the need for inspiring change in other ways before it is too late.

I still get people asking me if auto-enrolment is a “good idea”. Nobody is talking about the upside benefits of employers’ contributions doubling from 1% to 2%. This is all free money and all the contributions are tax free. One way I have previously explained why auto-enrolment is a good idea is by asking the person to put £10 on the table and noting that I would then match it with £10 of my own money. I would then point out that they would receive 100% interest on day one and query how old they would have to grow to match that through normal interest. The answer is infinity at today’s rates! I would also point out that you only have to put up a maximum of £7.50 not £10, as it is pre-tax. It would take (literally) a lifetime to recoup the lost money if people opted out – doing so is like walking into the street and burning £10 notes. They then understand immediately.

Communication is key to behavioural change

I believe the key to behavioural change is effective marketing. Technology can be used to mass personalise every individuals’ pension product and show them how they can protect their lives and not live in penury in their old age. It just needs motivation, good customer engagement and the right tech!

Insurers should be using all forms of omni channel marketing technology to change behaviours. They can do this by providing business-friendly technology interfaces that help companies provide customer-centric, high-value engagements to improve every customer experience, enable more effective retention and achieve high response rates. This can include mobile apps, social media and artificial intelligence-based interactions to foster better engagement and buy-in.

For example, from August 2018, Aviva has been enabling customers to check how much money they have saved towards their pension by asking their Amazon Alexa, an easy way for the insurer to make the idea of saving for retirement much more engaging. Tech such as this can also help contextualise the importance of saving for a pension at every life stage, especially for those at the start of their careers with lots of short-term costs such as rent that they might prioritise over pensions.

AI can help identify the best time to talk

Artificial intelligence is a particularly useful technology in communicating the benefits of auto-enrolment as it can help insurers decide the best time to talk to their customers about pensions – at points of their lives consumers actually want to talk to their insurers. These points are known as “Life Events”. If a consumer is approaching a milestone, whether it be the placing of a deposit on a new home, engagement or new baby, they are far more likely to be ready to review their financial situation and be thinking about the future than they would if they were just thinking about the short-term. Expectant mothers and fathers may also be prompted to change their thinking about saving, as they realise that it is no longer just their futures that would be affected by financial shock but their children’s too.

The future of auto-enrolment

The minimum automatic enrolment contribution from employers is set to rise again on 6 April 2019 from 2% to 3%, but the minimum contribution from staff is due to rise from 3% to 5% on the same date. Insurers should take the opportunity to work with businesses now in an effort to prevent further auto-enrolment opt-outs.

Maya Angelou once famously said “people will forget what you said, people will forget what you did, but people will never forget how you made them feel”. The intelligent application of AI insurers can appeal to people at just the right moment to help guide them to good decisions around auto-enrolment and have the potential for quite significant success.

Technological innovation will be key not only to reducing the number of consumers opting out but also encouraging more to change the way they think about pensions and savings in general.