The right tools for the job

Providers are taking steps towards offering member education tools, but more needs to be done says Ian McKenna, director of the Financial Technology Research Centre

Designed for use with Stakeholder and GPP Defined Contribution schemes, generic versions of the tools will be available directly from Friends Provident’s group pension website without the need to go through any login or security. They have however been built in ways that are intended to make it easy for the company to tailor individual versions that can be used with specific schemes.

Whilst not targeted at any specific age range, the service aims to engage those in employment who are eligible to join the scheme, or members of the scheme who may want to change decisions about contribution levels or fund selections.

The initial version of the service comprises four modules which have been put together in association with the Financial Services Skills Council and a range of stakeholders. The first covers “Why do I need a pension?” including information on state benefits, where retirement income could come from, the impact of pension reform and generic information on the employers scheme.

“How much should I pay in?” covers issues such as the cost of delay, and introduces users to three case studies; new employee from university, been with employer five years but not joined scheme, or five to six years from retirement, all of whose questions and decisions will be examined in this and subsequent modules. “Where should I invest?” follows on from the case studies and examines issues such as different types of funds, tracker, fund of funds, active or passive, risk profiles and compares issues around cash, property, equity investments. This includes examples of why people in different situations (i.e. the case studies) would have reached different investment decisions.

Finally a “How to join?” module acts as an aide memoir on the actual joiner process, impact of tax relief, choice of funds and similar issues. Initial descriptions use plain English to address issues and seek to engage the user through the use of interesting questions such as asking the user to estimate the cost of a pint of milk and the cost of a Ford Focus or equivalent in 2038. The answers by the way are 82p and £33,133 respectively assuming 2.5% inflation. The aim is to give the user a more interactive experience and in this respect it is engaging.

Whilst I think tools of this type are really valuable, the tone of commentary in the generic version came across to me as somewhat patronising. I believe this highlights the importance of understanding the level of knowledge of users and adapting the complexity and content accordingly. This service is a good start in an essential area but I believe it is vital to recognise the need to look at understanding the audience more, rather than trying to deliver training in a one-size-fits-all way. I am told Friends Provident intends the next stage to be to deliver some elements of customer segmentation and tailoring different versions to meet the needs of specific employers and their staff. Fine tuning the language and positioning to make it more appropriate to individual workforces will be an important development.

The Money Guidance project is, I believe, a valuable opportunity to improve consumer financial education but it is important that, going forward, Government, the regulator and the industry need to recognise that, particularly with the current means testing of retirement benefits, there is an element of the population for whom financial guidance should mean reducing debt before starting to make any long term investment. Even with Money Guidance knowing the consumer is going to be vital and if the initiative fails to have adequate tools to understand individuals and their needs at the outset of the process, it may not reach its full potential.

Friends Provident should be applauded for what they have delivered and clearly this is the first step in a much longer road for them. There is currently no ability for the system to link directly to either joining or increments. Having won the engagement of the consumer I am disappointed that they cannot then proceed to execute their decisions and I would make this a priority for the next phase.

As an initiative like Money Guidance gains ground, it will be reasonable for employers to expect group pension providers to offer highly tailored self help tools to their employees. This is a step in the right direction.