Articles - A useful servant or a dangerous master

There is no doubt that technology is a key driver in most, if not all, industries and that the pace of change continues to accelerate. We may fondly imagine that we are up to date only to discover a colleague – or more tellingly our children – are using a new app to do something that you have spent hours on in mere seconds.

 By Fiona Tait, Technical Director, Intelligent Pensions

 I attended two excellent adviser events this month – the Pension Transfer Debate III, and the Personal Finance Society’s annual conference in London. The former was focussed on client needs, specifically in the high-risk area of defined benefits transfers, and the latter more towards the needs of financial planning businesses, but the prevailing topic in both was the impact of technology and the tremendous support it can give to advisers, savers and the people running their pensions.

 We must however ensure that the technology remains a highly efficient servant which makes our relevant tasks easier to carry out, and not the master which drives us to do things which suit the system more than the users. Even more challenging is the need to ensure it continues to do this as functionality and client needs develop over time.

 What do members and clients really need?

 Pension savers should know 3 basic things:
 1. How much will I need to live on in retirement?
 2. How much do I need to save to achieve this?
 3. Am I currently on track?

 None of this is particularly easy, if it was I’d be out of a job, but once you have the answer to number 1, technology can make short work of the answers to numbers 2 and 3.

 In an ideal world the retirement journey would look like this:
 • Pension savers use an income and expenditure app to identify the amount they need to cover their basic and discretionary spending.
 • They then use a shortfall calculator to assess how much they need to save over the time they have available to provide this level of income when they intend to retire, or begin the process of retiring. Ideally this would include a tax calculator which could compare savings options and identify the most efficient for the individual’s current tax status.
 • Savers would also be able to use a risk profiler to identify suitable investments and the likely returns they might receive from each. This could be particularly valuable for younger savers who could benefit from long term investment in assets further up the risk/reward scale.
 • As their savings build up pension scheme members could use the pensions dashboard to obtain an up to date valuation of their current plan(s). The data from this service would then be integrated with their other savings and investments to provide a holistic view.
 • If they change employment they would have access to a comparator tool which assesses the relative value of their paid up plans with potential replacements, helping them to decide whether a switch or transfer is in their best interests.
 • When they get closer to retirement, savers will use a cashflow modeller to assess whether their savings are adequate to sustain the income they need (they may also use a mortality tool to predict their likely life expectancy, based on their age, health and family circumstances). This would include “what if scenarios” to test the effect of retiring later or saving more if this is required.

 The thing is, most of this is available now. Unfortunately however, all of these wonderful support tools tend to exist in their own universe, and it is not always easy to bolt them together into a cohesive pattern. This is particularly true as projections and outputs can be highly complex and bewildering to lay persons.

 Technology also assumes that individual savers can make rational and informed decisions about their finances, particularly with regard to their evolving priorities and the trade-offs that may be necessary between them.

 Technology can certainly do a lot of the hard work, but it takes a human to deal with emotions. Financial guidance and advice is not going to be replaced by computers. What they can certainly do is improve the efficiency of the advise process and, possibly more significantly, allow advisers to concentrate on what they do best – getting to know their client and what they want to achieve in life.

 If I may leave you with one last thought, it is this. The author Sam Ewing once said that “Computers are like bikinis. They save people a lot of guesswork”.

 Used correctly they certainly do, what they don’t do is understand the motivations of the woman who is wearing it.

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