Awareness, knowledge and attitudes regarding the retirement process for PADAs target audience

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Awareness, knowledge and attitudes regarding the
retirement process for PADAs target audience

• Kate Foord, Research and Insight Manager

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Agenda

• Setting the scene for the Decumulation research
• Background
• Objectives
• Methodology
• Setting the scene
• Key findings
• Sample profile
• Annuities
• Personal accounts scheme
• Questions

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Background

• Research report rationale
• Primary reason to inform the consultation
  document, Building personal accounts securing a
  retirement income
• these findings have been clearly referenced in
  chapters two and three of the document
• Secondary reason increasing PADAs
  understanding of its potential target groups
  awareness and knowledge of the retirement process

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Objectives carry out qualitative research to

• Acquire insights into our target group's
  awareness and understanding of the retirement
  process
• In particular, gauge awareness and knowledge of
• Decumulation
• annuities
• the choices people make
• the factors influencing the decision-making
  process

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Methodology

• Conducted in July 2008
• By Cragg Ross Dawson, an independent research
  agency
• 14 group discussions
• 10 in-depth interviews with couples

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Sample

• A mix of
• genders
• occupations
• locations in Great Britain
• personal pension and state pension holders
• those about to retire, recently retired, further
  away from retiring
• Skewed towards lower socio-economic group levels
• B professional/managerial
• C administrative/clerical/skilled manual
• D unskilled manual
• E unemployed

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Setting the scene

• The research sample reflects the range of future
  personal account scheme members
• The views are those of the respondents and not
  necessarily those of PADA

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Key findings sample profile

• Respondents can be divided into four categories
• A few seemed to be financially sophisticated and
  savvy
• A larger minority were apprehensive about the
  future
• The largest category were vaguely aware that they
  ought to plan for the future
• Another minority seemed totally unaware of the
  need to plan for the future

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Key findings sample profile

• Very few had consciously taken the long-term
  view and planned specifically for the future
• Most of those without final salary pension
  schemes felt they had not provided adequately for
  their retirement
• Involvement in financial decisions varied
• Many of those in settled relationships or who
  were long-term single, can be seen as riding a
  conveyor belt through their financial life

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Key findings sample profile

• Respondents use a variety of sources to inform
  themselves about financial issues
• Awareness and understanding of pensions and
  annuities was patchy
• Most respondents had some sort of pension cover
  for their retirement
• Feelings about pensions fell into two types
• indifference to detail and the future
• cynicism and lack of confidence that the pension
  will be worth anything

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Key findings sample profile

• A number of respondents knew, in basic terms, how
  money-purchase pension schemes work
• Confusion over how pensions work
• A paradox occurred - respondents were aware that
  pensions are important, but they were not used to
  making serious decisions about their pensions.

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Key findings - Annuities

• Respondents, in the main, were unaware of
  annuities
• There was a high level of confusion about
  annuities
• Most thought they would take the full lump sum
• Many with partners said they would take a
  single-life annuity
• Despite the long-term value of escalating
  annuities, many felt the initial reduction in
  income too great compared to level annuities

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Key findings personal accounts scheme

• Approval for the idea of personal accounts was
  widespread
• However, there were some points of contention for
  a minority
• Many perceived the scheme to be government run,
  given that employers are obliged to contribute
• Clarifying the schemes status as independent or
  not-for-profit could, most felt, give it
  credibility to provide information about annuity
  types and rates

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Questions

• What factors do you think might make our target
  group particularly hard to engage at retirement
  and is there anything that can help address this?
  
• What are the right points in peoples lifetime to
  communicate with them about retirement?
• What additional questions about retirement within
  our target group would you like to see answered
  by further research?

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The customer journey

• Julie Stark, Head of Product Marketing

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Background

• The customer journey will have to be designed
  with the specific membership of the personal
  accounts scheme in mind
• little knowledge of pensions and disengaged
• annuities likely to be appropriate but find it
  difficult to exercise open market option (OMO)
• We believe this (plus the need to be low cost)
  requires a process that
• primarily relies on e-channel service delivery
• focuses on annuities, while encouraging
  consideration of other options

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Customer journey

• On approaching retirement
• Members will be notified of their retirement
  options, including
• Annuity purchase via the open market option,
  including availability of pension commencement
  lump sum (PCLS)
• transfer, offering access to other options, for
  example unsecured pensions (USP)
• trivial commutation, where appropriate
• Annuity purchase from a panel of providers after
  using the structured choice process, including
  availability of PCLS

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Customer journey cont

• Structured choice process
• Well focus today on the structured and focused
  choice processes as the OMO will be the same for
  a personal accounts member of any DC scheme

1. Member directed to scheme
website
2. Questions lead member
to annuity type
3. Non-standard annuity
options flagged as being
available through OMO
4. Members can choose
focused choice and/or use
e.g. IFA to
search market
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Customer journey cont

• Focused choice process

1. Info sent electronically to
annuity providers
2. Live quotes provided
electronically to member
3. Member compares quotes
and can request new
quotes
4. Member makes decision,
provider sent information to
commence purchase process
5. Purchase agreed by all
parties,purchase price
transferred, documentationsent out
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Questions for discussion

• What type of information is most effective in
  raising awareness and educating people about
  Annuities?
• Is there any good practise you can share for
  getting people to exercise the OMO?
• How do we strike the right balance between
  keeping the focussed choice process simple, which
  may require restricting the product range, and
  helping members to access the best product for
  them?
• Are there particular steps along the customer
  journey that will be difficult to deliver online
  or which members will find difficult to navigate?
  If so, how could this be remedied/what further
  support should be given?

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Building personal accounts securing a retirement
income
The panel of providers

• Mark Fawcett, Investment Director

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Why are we proposing the panel of providers?

• Current position
• DC members typically take annuities through
• open market option (OMO)
• default provider
• Evidence suggests default option more common than
  active choices

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Why are we proposing the panel of providers?
(cont)

• Personal accounts
• No default option for personal accounts
• Will encourage members to exercise OMO
• Potential for stranded pots
• Panel of providers addresses these issues and
  meets members needs

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What are our aims in proposing a panel of
providers?

• Simplicity and accessibility for members not
  wishing to or not able to use the OMO
• A low cost process to ensure low set-up charges
• The ability to ensure that small pots are not
  stranded
• All members get access to competitive value
  products

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What do we propose the panel of providers will
offer?

• A limited range of straightforward annuity
  products
• Minimise need for supporting information
• Real-time quotes
• Competitive rates
• Standardised processes and information to
  increase efficiency

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Potential issues

• These are some of the issues that have been
  raised
• with us during earlier discussions with
  stakeholders
• The commercial attraction of a panel member could
  be reduced by
• prescriptive criteria for being on the panel
• the higher volumes of smaller funds, especially
  in the early years
• Offering a limited number of annuity types risks
  restricting a members ability to secure the most
  appropriate annuity for their circumstances
• Build or own panel or buy one that already exists
  in the market?

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Questions and discussion

• What factors do we need to consider to ensure the
  panel works as effectively as possible?
• for example how we ensure maximum
  competitiveness?
• how do we make being a member of the panel
  attractive to potential suppliers?
• is it realistic to expect panel members to
  provide annuities on funds as low as 2,000?

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Questions and discussion

• What additional products should the panel offer?
• the panel of providers would offer limited
  annuity types such as
• single or joint-life
• level or escalating
• guaranteed or non-guaranteed
• Are there any alternatives to a panel of
  providers that we should consider?
• Build or buy the panel?
• pros and cons of each