Life has been turned on its head over the last 12 months, with people recalibrating their lives and having to make decisions that would have been unthinkable less than a year earlier. Some people aged over 50 have also had their retirement plans thrown into turmoil.
As lockdowns and furloughs became the norm, nearly one in five people aged 52 and over in the UK saw their finances deteriorate in the months following the outbreak of the virus, according to the Institute for Fiscal Studies. At the same time, Maps said, 11.5 million people in the UK have less than £100 in savings to fall back on.
The financial crisis brought about by the pandemic has seen more people aged 55 and over turn to their retirement savings to live on.
Addressing vulnerability and hardship
In the last three months of 2020, 360,000 savers accessed their pension – 10% more than did during the same period of 2019, according to HM Revenue & Customs. Between them, these savers took out £2.4bn early – £2.2bn more than over the same three months the year before.
The increased financial uncertainty, combined with volatile market conditions, has unsurprisingly affected pension scheme members approaching retirement. They crave certainty as they make life-defining decisions regarding their retirement income. Yet, in uncertain times the underlying value of these investments can be less stable.
For members who dip into their pension funds early, and at short notice, the consequences can last throughout retirement, as any losses are crystallised. Other members are accessing their pensions to live on while contributions are still being made to their plans.
This comes on top of a decade of permanent revolution in pensions; from auto-enrolment and pensions freedoms to scrapping mandatory retirement ages and increasing the state pension age. For members, fully understanding the long-term impact of taking their pension earlier than planned can be a daunting challenge.
Over-55s aren’t facing this financial predicament alone: pension providers are reimagining their propositions to help this demographic. The best providers have acted quickly to support people, helping many avoid making panic decisions with their pension that they might regret later.
Providers have used a combination of communication approaches to help; for example, for members we have:
- Worked with behavioural science experts at Cowry Consulting to create communications that were clear, simple and designed to reduce the anxiety we knew members were feeling
- Increased “Stop and Think” messaging, including extra pension and scam warnings to help protect members
- Redesigned our online plan your retirement journeys; providing guidance based on member confidence levels
- Provided extra support and training for our telephony teams to help members in more vulnerable situations and who expressed concerns of financial hardship – enabling them to understand their product options and the financial help available in the wider marketplace
Many providers are actively looking after their members by taking a holistic, member-centric approach to financial planning, producing emotionally intelligent communication, and enhanced digital capabilities.
Focusing on financial planning
The pandemic has underlined that members need personalised support and engagement in the lead-up to their retirement. This means providing investment journeys that are simple to understand and aligned to personal goals.
Innovative providers have pioneered new approaches, many of which are now mandated by the FCA for all. Take, for example, milestone birthday wake-up packs alerting members to upcoming changes and detailing their options, and guided investment journeys, helping members with their investment drawdown decision. Online drawdown review tools can nudge members to consider whether they’re invested in the right funds and project when their money is likely to run out.
The pandemic has created huge stress and anxiety that can impact people’s decision making, which is where monitoring the changing behaviours of scheme members comes into its own. We can identify where people are making withdrawal decisions that don’t align to their intended plans when they chose their drawdown solution, and can get in touch to suggest they reassess.
Reaping the digital dividend
The move to remote working during the first lockdown accelerated the use of digital channels for pensions and retirement engagement.
With members worried about their pensions and eager for reassurance, the omni-channel model proved its worth. People need to be able to engage in their preferred way and to experience a seamless, rapid and personalised response whether by phone, mobile or letter.
With everyone quickly adapting, we have seen new tools, mobile app and member dashboard usage spiking. Mobile apps have emerged as the preferred digital channel for communications and secure transactions.
Virtual events and webinars have come into their own too, with our members rating these events very highly. Fears over digital engagement being inferior have largely proved unfounded; it looks like these events will be here to stay in the post-pandemic world.
The financial feelgood factor
Financial wellness is a complex issue facing over-50s. Covid-19 has been a disruptor, stress-testing decumulation plans and compelling the pensions industry to respond robustly.
Those providers that have delivered pro-active and member-centric communication, planning and engagement strategies around decumulation, have delivered for their members: they’ve genuinely supported them and put them first.
Gail Izat is workplace managing director at Phoenix Group