What we often get wrong about the future is underestimating the subtle and sweeping nature of innovation. Instead of flying cars, we have a system of citizensoffering rides to the public, coordinated through a digital network. The future of retirement may not translate into travel to the moon, but it could feature a similar tech-enabled structure, leveraging data for more efficient and effective outcomes.
Technology has changed the ways people live and work, and it will also have a say in how we retire. Working in an industry that is defined by looking ahead, we wanted a technologist’s perspective on the future —not only what it would mean for the individual, but for the industry. Sitting down with Romi Savova, co-founder and CEO of UK pension provider, PensionBee, we asked her what she envisioned the future state of retirement would be and what advice she would give the industry.
Romi offers a unique perspective. She started her career in the financial services industry, first as an analyst at Goldman Sachs and, after completing an MBA at Harvard Business School in 2012, as an associate at Morgan Stanley. Like so many entrepreneurs, Romi was inspired by a problem. She found the experience of trying to move her company-sponsored savings account from a past employer to a new one unwieldy and exhausting. “I couldn’t believe the difficulties I had encountered and soon realized thatmy experience wasn’t uncommon. I knew there had to be a better way so I set about using technology to find a solution.” PensionBee launched in 2015 and offers savers a digital and transparent experience that puts them in complete control of their retirement savings.
According to Romi, “Retirement is going to be a deceleration, not a hard stop. Savings within Western countries are still quite low relative to expenditure need. A lot of people won’t be able to sit on a garden chair in their late sixties or seventies -and many more won’t want to.”
To account for this fluid journey of work and retirement, including career pivots, retirement interludes, part-time work and longer lives, Romi envisions a centralization of finances that remain invested in the market, even after “retirement” age has been reached. If the role of the retail bank becomes significantly reduced in the advent of tech-enabled finance, then this in-market account, accessed with something akin to a debit card, becomes the hub of one’s financial life. What’s more, this centralized financial experience could be benefited by “robo” rebalancing by life stage and income need —ascalable proxy for the advice so many employees and retirees seek, as echoed by 75% of our 2019 Global Retirement Reality Report (GR3) responders, but few get.1 The consumer finance future is ripe enough to attract industry big shots like Goldman Sachs and Apple, as evidenced by their March 2019 credit card collaboration announcement.2 Other tech giants, including Amazon, Google and Samsung, are also anticipating a tech-enabled consumer finance future and are exploring next gen digital payment services to meet the demand.3
The fact that these providers aren’t traditional financial service companies could bode well, as consumers may be less connected to banking brands than the lifestyle extensions major tech firms represent, making technology companies feel like a more natural fit in the financial fabric of consumers’ lives.4
Regardless of the business, technology is becoming the business model. With financial industries being targeted by tech companies, the incumbents’ best bet for future relevancy may be reinvention. Here, Romi offers three pieces of advice as a technologist to a traditional industry:
The retirement industry needs to focus on getting participant data clean and in a safely transportable format so that savers’ information can be connected, enabling a complete financial picture and frictionless movement across the future digital economy. While data hygiene will smooth transactions overall, the ultimate beneficiary will be participants, who will be able to ensure their data is their own and gain easy access to a comprehensive financial view.
In Europe, the General Data Protection Regulation (GDPR), intended to strengthen and unify data protection for individuals within the European Union, takes meaningful steps in this direction and may offer a blueprint for other countries.
This data task is so large as to require regulatory support and oversight. As the US awaits similar legislation, it can focus on those active policies seeking to extend savings plan access and coverage to all workers, regardless of company size. Once a more inclusive platform for access exists, the power of transportable financial data will be more fully realized.
Firms that let legacy tech systems and bureaucratic processes set the tone for the customer experience will lose. Plan sponsors and participants expect ease and accessibility. Leverage demographic trends and behavioral insights to determine consumer needs, wants and savings aptitudes, then cater communications, products and experiences to further retirement readiness.
Romi furthers the idea that a better user experience propels better outcomes by encouraging sponsors to “think of themselves as participants too. Participants expect up-to-date technology and sponsors have the ability to deliver this. Sponsors can only create appreciation for a savings plan if participants can engage with it.”
In the consumer space, Stitch Fix, an online retailer that uses artificial intelligence (AI) in complement with human stylists, offers interesting insights. The platform launched in 2011 on the premise of delivering to women individually styled clothing to create empowering and efficient wardrobes. By having access to a range of brands, with selections delivered by mail, consumers are able to take a faster track to a customized closet. While the customer need was supported by data, the data didn’t stop there.
Ongoing feedback from customers on the clothes curated by StitchFix enables continuous refinement of customer profiles, creates operational efficiency (in reduced returns and warehousing and optimized brand relationships) and is leading Stitch Fix to develop original designs based on customer preference trends. Here, data mined through ongoing engagement lets the customer inform Stitch Fix’s evolution.
But don’t expect consumers to be experts —either as industry innovators or investment managers. They should be educated and engaged, and their preferences prioritized, but customers are not practitioners. In the realm of consumer tech, users have become increasingly savvy, confidently and effectively engaging a range of devices, without having to become engineers. The same level of participation should be the aim of the retirement industry.
Firms must look outside of their organization and apply a market lens to business strategy. An obvious application of this advice is to let the customer lead, but investment managers should also be cautious of letting savers set the strategy.
If the retirement industry were to deliver solutions that addressed only savers’ expressed desires, we may never have pushed beyond a balanced fund (offering a static set of asset classes to deliver diversification) to a target date fund (following a glidepath that adjusts risk and return across underlying funds to synch with a saver’s specific life stage). Steve Jobs has been famously quoted on this point, saying, “People don’t know what they want until you show it to them...Our task is to read things that are not yet on the page.”5
Part of developing innovation is delivering invisible product complexity. In the case of target date funds, the construction of the product is intricate but the user experienceis effortless. These dual benefits help to explain target date funds’ popularity; the strategy accounts for 85% of companies’ qualified default investment alternative offering and is quickly capturing the majority of new saving flows.6
The next innovation to anticipate market needs and deliver a seamlessly sophisticated solution will most likely be around the decumulation phase of retirement. The foundation for savings support is mostly in place, but the gap created by the retirement transition remains. From providing scalable access to advice to reimagining draw down strategies to exploring a guaranteed lifetime income stream, the future of retirement investing will be solving for spending.
Participating in large-scale data hygiene, letting consumers chart the course, and broadening the (investment) strategy are all tech-driven tenets that can help the retirement industry better adapt to and serve individual and societal change.
The future state of retirement may appear only subtly changed —no holidays on Mars! —but will likely be defined by a more data-driven and fluid user experience. In addition, the idea that retirement is an individual experience may also shift, as changes in lifestyle and lifespan make the experience an integrated social issue, one in which technology can play a meaningful role —including affecting the nature and duration of the employer relationship.
As savers move toward accessing a fuller financial picture, including health savings accounts, outside accounts and Social Security, employers may gain a different perspective on participant readiness —to and through retirement —and manage employees and service providers differently. Early findings in this year’s GR3 research suggest that employers’ limited view into employee readiness has stalled support and solution development, as few know what they are solving for.
By focusing on building a centralized data portrait per participant, curating a client experience to meet the needs and wants of tomorrow’s savers and seeing investment strategy differently, retirement asset managers, sponsors, and recordkeepers can reinvent the future of retirement.
1 CNBC.com, “75%of Americans are winging it when it comes to their financial future,” April 9, 2019. https://www.cnbc.com/2019/04/01/when-it-comes-to-their-financial-future-most-americans-are-winging-it.html
2 Bloomberg, “Apple's Credit Card Gives Goldman Sachs Rare Customer Role,” April 9, 2019. https://www.bloomberg.com/news/articles/2019-04-09/apple-s-credit-card-gives-goldman-sachs-rare-customer-role
3 Wall Street Journal, “Goldman Sachs, Apple Team Up on New Credit Card,” May 10, 2018. https://www.wsj.com/articles/goldman-sachs-apple-team-up-on-new-credit-card-1525966214
4 Bain & Company, “Many Consumers Trust Technology Companies More than Banks,” January 9, 2019. https://www.bain.com/insights/many-consumers-trust-technology-companies-more-than-banks-snap-chart/Callan, “2018 Defined Contribution Trends Survey,” 2018.
5 Walter Isaacson, “Steve Jobs,” Thorndike Press, © 2011.
6 Callan, “2018 Defined Contribution Trends Survey,” 2018.
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Exp:June 30th, 2020