Robert Cochran: Financial connectivity to 'revolutionise and simplify' pensions

clock • 3 min read

The future of pensions is in the palm of our hands, writes Robert Cochran. Here he explores the seemingly endless possibilities...

The future of pensions is in the palm of our hands. With digital and mobile banking on the rise, we're now more financially connected than ever. The ability to engage with our money at the touch of a button will continue to revolutionise and simplify the way we interact with our savings. Technological innovation has become the norm over the past two decades, working to remove friction and pain points from the way we go about our lives. This is bleeding into the way we manage our finances with the likes of open banking allowing customers a clearer view of their finances by aggregating all accounts in a single screen.

The pandemic as a catalyst

Technological disruption has become synonymous with speed and the pace of open banking adoption is no different. At the beginning of 2020, there were one million open banking users − those who have connected their bank finances with other apps to manage their money. By September this had doubled to 2 million and now there is an estimated 3 million regular users. While pace is key, the pandemic has also been a catalyst for this switch to digital with closed branches and lockdowns leading to Lloyds Banking Group seeing a 51% uplift in people setting up online banking compared to the same period in 2019. With more customers now online and an appetite for simplifying finances, it's clear that there's a huge opportunity to utilise this digital shift. We're seeing increasing numbers of disruptors and start-ups tapping into this, which is not only changing the dynamics of banking but is also putting pressure on more traditional institutions to evolve the digital experience.

What does this mean for pensions?

We're moving towards a future where instead of having separate savings with different providers that are housed in different places, we'll be able to access those digital savings jars in one single place. This means those separate accounts you had for everyday savings, ISAs, mortgages, and pensions can now sit alongside each other, giving an easy overview of all of your long- and short-term savings. On average, Lloyds Banking Group customers that access their pensions actively online view their savings just over twice a month. With open banking this figure jumps to 26 times a month meaning that integrating your pension next to these other savings jars, not only increases the amount you view your pot but also means that you're more likely to take action in ensuring your working towards your retirement goals. There's also a knock-on effect for providers who can utilise the data from open banking to tailor communications and insight to customers, ensuring they're utilising their savings in a way that is most effective for their lifestyles. We know that the visibility of your pension and clear prompts about your future can have a huge effect on boosting savings. Research we conducted last year with the Behavioural Insights Team showed that by rewording pensions savings as investments and helping users picture their future self, twice as many young people would recommend increasing pension contributions from the default minimum of 8% to 15%.

Looking to the future

While a financially connected future looks promising, we've not completely revolutionised the way we save just yet. A third of the population still claim to have very low digital skills, so there's a long way to go in ensuring everyone in the UK has access to these technologies. And as ever, movement of this scale will require regulatory simplification to enable some giant leaps forward. That being said, we're already seeing the benefits of digitised jars and are heading towards a not-so-distant future where the combination of Open Banking, Pensions Dashboard and Open Finance will move us on from digital jars to digital dashboards for lifetime finances, helping savers to really make the most of their money.  Robert Cochran is pensions expert at Scottish Widows

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