Retail investors are frustrated with the user experience provided by their pensions and investment providers. Our latest blog explores how the pensions and investment industry is not meeting the user experience their customers expect. The industry needs to accelerate their investment in digital solutions if they are not to lose further clients and assets to banks and platform providers that are further ahead in their digital journey
What is the problem?
Anyone who has sought to transfer or consolidate a pension from one provider to another is likely to have experienced a painful conflict between their expectations and reality.
In the digital age we are used to immediacy and speed. But in the world of pension transfers and drawdowns, consumers often feel like they have gone back in time to an analogue age.
Incredibly, despite digital tools being available, some providers continue to have paper-based transfer processes. And their legacy back-office platforms are poorly integrated into front end digital channels. This means they are unable to transfer the cash fast. Three months plus is not unusual.
What is the average waiting time: what did our poll say?
We decided to survey the market to find out how poor the user experience has been. Our recent LinkedIn poll asked our followers how long it has taken them to transfer or consolidate a pension to a new provider.
- Over 71% stated that it had taken one month or more
- 21% stated that it took longer than 3 months
Unbelievably, in an age when platform providers allow you to buy or sell the same funds that pensions invest in in 24 hours, pension transfers are taking over 750 hours (31 days) to do effectively the same transaction.
What is going wrong with pension providers?
Clearly there is more for the pension provider to do than simply sell the underlying funds and transfer the proceeds to the holder. There are important checks that need to happen: is it a scam, is the value correct, is the cash moving in accordance with the rules? Is the new pension provider credible?
From November 2021 trustees and scheme managers are required to ensure specific checks are made before complying with the members’ request. Clearly it is important that this due diligence step is performed to determine whether the request meets the conditions to enable a statutory right to transfer. However, these relatively basic checks and controls should not justify an elongated transfer process.
On completing these basic due diligence questions the actual movement of cash should take minutes. In fact, it takes, days, weeks and often months. And this delay can result in a detrimental impact to the customer, not only frustration.
- Customers may miss a tax deadline such as fully utilising their cash & equity ISA capacity
- The delay may cause customers to pay too high a tax rate for that tax period
- Investment opportunities are missed and cannot be planned
In other words, the delay could be materially life changing for the customer.
It is difficult to understand why the industry has not invested in the technology tools that are available and can be deployed relatively quickly to offer a transformed user experience. It is difficult not to make the assumption that the industry is inwards looking not outward looking: they can appear to operate on the basis that the process is complicated and sometimes forget the impact on the customer.
The Snowball Effect of Unhappy Customers
What is the future customer behaviour following such a user experience? We are not talking about a minority issue here that the industry can afford to ignore.
- The Pension Advisory Service regularly lists the top complaints as relating to delays, under/over payments and payment errors
- Current research indicates that the average person will have 11 jobs over their lifetime (1), so most PAYE-employed individuals will be affected by this issue at some point
- The younger demographic expects a seamless digital experience and will not use a pension provider again if they do not get one
What is the impact of unhappy customers?
- The consumer may still complete on a transfer but they are unlikely to use that pension provider for any of the other investment services they offer
- The new provider is likely to be partially blamed by the customer for the poor service
- As a result, the consumer is likely to take the same view of the rest of the pensions industry based on their single pension provider experience
- They may choose to highlight issues to the regulator – especially if they have lost a large amount of investment income by having had their pension held in cash for elongated periods of time.
Removing Constraints with a Fully Digitised Customer Experience
What if there was a better way? Assuming pension providers are aware of this problem and believe it is important enough to resolve, why does the problem still exist?
It is true that there are often underlying barriers that have prevented the adoption of intuitive digital channels in the industry. Leadership culture and conservatism play a part. But so does the complicated legacy back office cash management systems of pension providers. A brilliant digital front end cannot be simply bolted onto a poor back office without proper integration: expensive manual controls and processes will make delivering the front end customer service uneconomic for the firm.
Providers should look at solutions which can be deployed in the back office fast without disruption and can be seamlessly integrated with a new digital front end. They should also utilise Open Banking capabilities for fast bank integration, so customers can see their cash move from one provider to another on the same day, and can immediately act on that transfer to invest, or drawdown.
The technology is proven across the Banking and Wealth Management Sectors – so will pension providers and insurers choose to act?
Find Out More
For more information on how Cashfac can help, please contact us using the form below.