Robert Cochran, Retirement Expert
The focus at the start of the Twenties has been all about separation and keeping our distance as the world battles the global pandemic. But when it comes to finances the direction of travel is the opposite way. This decade will be all about breaking down barriers, about connecting finances and this will challenge many of our current norms for employers selecting the benefits they offer employees.
Traditionally personal finances have been very siloed in nature. Behavioural economists term this Mental Accounting, classifying wealth pots differently resulting in “irrational” decision-making in spending and investment behaviour. However, financial regulation, and our historic technology solutions, have set up these walls between different components of your finances. Each silo is serviced with its own providers, advisors and professional bodies reinforcing the lack of interconnectedness.
Over the next decade we expect to see change, with positive regulator interventions and Fintech investment catalysing the move to financial dashboards in a way we have already seen happen in areas like fitness, where simple dashboards allow you to track your physical exercise, health and nutrition goals.
This has already started happening in Finances with Open Banking allowing account data from multiple providers to be consolidated in one place, helping to remove the silos for short term finances. Open Banking has just ‘celebrated’ its third birthday, it may not have revolutionised banking yet – but with 3 million users it has proved the concept of sharing very sensitive financial data en masse in a way which doesn’t compromise bank level security.
At the other end of the financial savings spectrum we have your retirement savings and the government is pushing ahead with the Pension Dashboard. It’s goal is to allow you at the click of a button to see all your pension pots in one place, and like banking or fitness, once the data is in one place it can be used to help people understand what they have, and if it’s enough.
These examples are largely within their respective silos but now we are seeing financial solutions crossing traditional boundaries. The government and regulators have been at the forefront of change here – consider the LISA – it’s a savings product, a property purchase product and pension product – so doesn’t fit neatly into any of the silos but with a few changes could be a start at a lifetime finance product. Also consider the creation of the MAPS (Money and Pension Service), the government has taken a complex landscape, including; MAS (Money Advice Service), TPAS (The Pension Advisory Service) and Pension Wise, and rolled them into a single holistic guidance and support body.
We are beginning to see providers embrace this connectivity – Lloyds Banking Group recently connected their bank accounts to Scottish Widows pension policies and other savings and protection products held within the group. This has the potential to completely revolutionise people’s relationship with their pension - typically people rarely check their pension but on average check their bank account 26 times a month using digital solutions. Last year people in the group saw their pension and other savings products next to their bank account 148 million times, and this is only the start.
The big question for employers is what does this mean for them? Will employees expect their employers to offer solutions that are much broader than just retirement solutions? Will they expect schemes to be able to share data with their chosen dashboard? Or, will employers be expected to provide the dashboards to help their employees connect their finances and navigate a wider set of financial targets?
Connected Twenties – the decade of financial connectivity, enabling a GPS for your finances?
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