We need to shift outdated dialogue to increase member value

As it stands, trustees and corporate sponsors are required to focus on cost, basic administrative service provisions, and transition risk when assessing member value. 

It is true that we must continue to evaluate our traditional service provision — it is our job to deliver a secure, well-governed and cost-effective pension solution to our members. 

However, we now need to review meaningful improvements to each member’s experience, something that is clearly missing in today’s value measurement framework. Then we need to think about the long-term relationships we have with members. 

The traditional journey is now identified as one of the biggest risks to a pension pot and member value

How will the needs of member cohorts change over time, what are the risks that are likely to materialise in the future, and what structures are in place to evolve an offering?

Start with transparency

Member value has to start with a solid foundation in service delivery. We begin with the acknowledgment that current business models that service the majority of the industry were designed for defined benefit schemes, not defined contribution. 

While there has been an industry-wide push for transparency, how many have peeled back their layers enough to offer genuine clarity around cost and service? 

There is no denying that this is a difficult ask for a vertically integrated model, but so is changing part of a provision (ie, administration) if service levels drop. Within any business model, the risk of a monopoly service can erode value and service in the long term. 

Ownership and service credits can be used to incentivise, as well as to ensure that a business model is flexible enough to allow for future change, as member needs evolve. This can provide protection from risk of service issues or failure, with minimal impact to our members, while also growing value at scale.

Fix the pension pot to retirement income journey

The value impact to members that comes with transitioning to retirement is an area that is still largely ignored. However, the traditional journey is now identified as one of the biggest risks to a pension pot and member value. 

In today’s market, moving from accumulation to an income fund or retail offer can often cost up to 3 per cent of a member’s pot, while leaving them open to sequencing risk and scams. This comes from recent research from HSBC Tomorrow Master Trust in partnership with Bayes Business School.

What is more, compared with being able to take a drawdown income within their existing scheme, the probability that a pensioner will run out of money by the time they reach age 90 increases by 11 per cent if they move their pension pot to an actively managed retail solution. 

To reverse this probability increase, the member would need to adjust their annual income down by around 25 per cent when setting up their drawdown plan.

Make member engagement tangible

Communicating with members is an undeniable value pillar and there are several examples of schemes utilising technology to deliver more personalised nudges to members around this topic.

However, with UK inflation hitting a 40-year high, communications about a future that may be 20, 10 or even five years away are likely to be an irrelevant experience for a membership facing eye-watering increases in the cost of living. 

Logically, combining short-term financial needs with awareness of longer-term savings becomes an apparent engagement solution. Historically, holistic financial solutions have proved difficult for providers to deliver, due to a corporate sponsor’s or trustee’s remit stretching only so far as an occupational pension. 

However, the rise of master trusts within the market is already providing a better way to offer collaborative savings vehicles. 

A way of thinking

Value needs to be viewed as a way of thinking. It is something that continually evolves, challenges the way things are done, and drives providers to try and do it better. 

Most importantly, increasing value will not be achieved if the perceived risk of innovation outweighs the inherent risk that is arising through the way many providers operate.

Alison Hatcher is chief executive of HSBC Retirement Services and HSBC Tomorrow Master Trust