Posted: 13th May 2015
In the words of the Financial Conduct Authority (FCA) chief Martin Wheatley, the new pension freedoms that came into effect this month were a ‘Y2K moment’ for the industry.
These are the biggest changes to pensions legislation in a generation. We haven’t seen the dramatic predictions of possible end-of the-world apocalyptic scenarios as per December 1999, but nevertheless, the new pensions freedoms are a momentous turning point that pension providers cannot ignore.
Engagement with pensions is likely to be higher than it has been for years. Savers are already turning to providers for guidance. The largest firms have each been handling 3,000 calls a day. In the face of such numbers, firms encounter the urgent need to make sure customers are supported adequately under the new regime.
Who will be coming to you?
To understand what your customers need, you first need to understand who your customers are in the context of these changes. Those at either end of the pension pot scale may be the least complex to serve. People drawing down cash from small pots don’t need advice, and those with a large pension pot can afford to take full advice. It’s those who sit in the middle you need to be most aware of.
This middle group of customers are the most in need of support. This is where the complexities lie, and where the most engagement will be needed.
These customers are likely to have some financial knowledge, but this knowledge will not be particularly comprehensive. They may well be reluctant to spend valuable money on industry advice but will still have a significant pension pot where advice is most certainly needed.
A complicated pensions journey
By defining the customer journey, you’ll be able to make sense of your firm’s pain points and those of your customers.
Most will begin by seeking free advice and visit Pension Wise who will most likely direct them to to the MAS directory of whole of market advisers. But the MAS directory in itself creates a problem for them. If these whole of market advisers don’t see them as profitable, they’re under no obligation to take them on as customers. Yet according to the reforms, only whole of market advisers are allowed on the MAS directory. A more suitable adviser would come from a restricted market standpoint, but many of these customers are likely to not be made aware of them.
If these customers are pushed away from whole of market advisers, they’re likely to fall back onto their providers, having received minimal information and possibly a thin grasp as to what products best suit them. For many, the knowledge that a provider has their details and could potentially give them their money the next day may create tunnel vision. An individual who has found the whole process confusing and overwhelming will likely be looking for easy access to their money, even if this isn’t their best option.
It is here where you, as a provider, face the greatest risk. You need to make sure that these customers who come to you can best protect themselves against future risks, which will in turn minimise your own risk.
Reducing the risk
So in the face of the challenges these reforms have brought, you need to be asking yourselves the following questions:
The right people
Do you have enough people with the right skill set to deal with the inundation of calls and appointments? Are they briefed on the information they can provide, and how they should approach these conversations?
The right quality checks
In terms of quality assurance (QA) – what processes are in place to make sure that those that come to you are fully aware of their options? How will you monitor that frontline staff are compliant in delivering advice and selling products?
Performing customer outcomes testing early in the new pensions world can identify problems in the sales process, advised and non-advised, quickly. This will mitigate your risks as a provider, and ensure you’re giving your customers the best possible outcomes.
You firm will be facing more interaction with customers, ones that find themselves with more choice than ever. We encourage you to take these crucial areas and the operations behind them very seriously. The Y2K ‘mayhem’ didn’t really generate the drama that was predicted of it, and with the right preparation and processes, pensions reform needn’t either.
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