As the group pension market faces up to the challenge of personal accounts, I believe we need to start to make our products as easy to understand as an iPhone. The problem is that for most of the past 50 years our industry has rejoiced in making our products too complex for consumers to understand. Indeed the advice profession has achieved its dominance largely by saying to consumers that financial products are too complicated to understand, let the adviser do the thinking for you.
Assuming a new Conservative government can resist the temptation to scrap the legislation, and with the ability to blame it all on Labour if it goes wrong, why should they, the obvious course of action for most employers on the arrival of personal accounts is likely to be just to follow the default option. The challenge to our industry will be to make GPPs and other schemes more attractive and to have employees recognise our products are better for them. Taking an “it’s too complicated for you to understand” approach is hardly likely to achieve this objective.
It is a fair bet that, given the public sector’s track record on technology projects, online services for personal accounts are unlikely to be an early deliverable. Yes there are people who do technology even worse than our industry. Consequently, the opportunity exists for our industry to use technology to clearly articulate the benefits of group pensions over personal accounts. This should focus on articulating in simple terms that consumers can understand why their group arrangement is better than anything the government will have to offer.
Whilst technical issues may be fascinating to those who work in the industry, to consumers they can all too easily be off-putting. Some insurers are beginning to get this message, the new Aviva services I looked at last month being a perfect example, but for the most part we are still confusing people with technical jargon that they don’t understand and feel patronised by. Learning to communicate in ways our customers can easily understand is becoming essential.
Major changes in consumer buying habits have taken place over the last few years as a direct result of the internet. The role of the retailer is increasingly being marginalised. Yes, people will look at things they want to buy in shops, but how many of them will then go and Google the same thing to see if they can get better value elsewhere?
If the once dominant retailer is now being circumvented by internet alternatives, the role of the adviser as the gatekeeper to information must be well and truly dead. Instead the group adviser of the future needs to help maximise member engagement by promoting the fullest range of material to make sure scheme members fully appreciate the value of the benefits they are receiving. If we wait until personal accounts are in place, almost certainly the battle will be lost. By helping consumers appreciate the value they get from group pensions we can best position them to recognise where such arrangements are superior to personal accounts.
History also teaches us that just because you have got a better product it does not mean that more people will buy it. Everyone knows that Mac was a vastly better operating system for at least a decade before Microsoft finally got its act together, but why do Windows-based PCs dominate? If as an industry we can start to talk in ways consumers understand and deliver better products there is every opportunity to make personal accounts as much of a failure as stakeholder. It is a good bet that personal accounts will be a bit like Windows Mobile, full of services if you can find your way through a long series of menus but ultimately so complex that most people will use them just to make calls, or in the case of pensions use the default investment option. If the pensions industry is to see off the challenge of personal accounts we need to come up with the pension’s equivalent of an iPhone.
Lots of people love their iPhones, but I don’t know many who love their defined benefit company pension scheme.