Financial wellness: DC sponsors want more from their providers

Many now expect the incorporation of ‘financial wellness’ propositions, integrating DC pensions into an individual’s broader financial life.

Financial wellness is a broad term that has different meanings and connotations depending on who you talk to. 

Harnessing open banking technology set-ups might allow members to see their DC pension pots alongside Isas, housing wealth, current accounts and any debt the individual may have

On the one hand, the term refers to set-ups where an individual can see various facets of their wealth and financial position in one place. 

For instance, harnessing open banking technology set-ups might allow members to see their DC pension pots alongside Isas, housing wealth, current accounts and any debt the individual may have. 

By viewing pension savings alongside other aspects of financial wealth, it is easier for members to plan for retirement by adjusting savings patterns, identifying the point at which they can afford to retire, and pinpointing how they can generate an income. Essentially, it facilitates long-term financial planning.

On the other hand, even with all this information at their fingertips, members may not know what to do with it or have the options available to make the necessary adjustments. 

Interviews with scheme sponsors suggest that a successful financial wellness proposition will also include educational facilities — which might take the form of online webinars, videos or workshops — as well as access to advice from professionals. 

Some providers have gone as far as to offer additional products alongside pensions, including cash saving facilities. Building a successful proposition means knitting these parts together to form a coherent whole.

The potential benefits are piquing interest. In a recent survey, Broadridge asked more than 200 schemes if they believe their providers should do more to build pensions into financial wellness propositions. 

Of the respondents, almost two-thirds agreed, with those in bundled arrangements – particularly in master trust and contract-based structures – the biggest proponents. 

The push towards financial wellness has been driven by the ongoing issues of low engagement with DC pensions, and the increased probability of suboptimal outcomes when members fail to make decisions in the context of their wider financial position. 

Our survey data also ranks member education and engagement as one of the top innovation needs highlighted by scheme sponsors.

This issue has been brought into sharp focus by the coronavirus pandemic. With incomes strained and the outlook uncertain for many, individuals might be more inclined to act rashly, for instance, by ceasing pension contributions. 

However, those who can see the totality of their financial position and possess a greater understanding of the impact of their decisions for later life are less likely to do so

By helping individuals contextualise retirement saving in a more comprehensive framework, DC pensions can establish themselves as the focal point of long-term financial decision-making for a generation of retirement savers. Providers need to step up to ensure this potential is fulfilled.

Hal La Thangue is an associate director of global insights at Broadridge Analytics Solutions