We need to end pension silos


Understanding the big picture, and taking all elements of an individual's circumstances into account, is critical in making good financial decisions. Yet, when it comes to planning for retirement – arguably one of the most significant financial decisions –  most of us tend to think about our pensions as entirely separate to other assets we may own such as property and savings.

It’s not hard to see why: for too long, pensions have existed in a silo of their own. Perhaps it’s failure by design; the traditional way in which financial advice products are set up focus too much on making people experts in specific investments instead of looking outward to interlink with other products. With regard to pensions, the industry has designed products and services that are too narrowly defined.

Meanwhile, the profusion of specialists in finance has caused the sector to split off into separate islands, with pensions so far a-drift that consumers are simply unable to view them within the same landscape.This, coupled with a series of stringent regulatory requirements, has seen the industry lose sight of the way in which pension policies connect with the wider savings ecosystem.

In some ways, the silo-approach is understandable. Considering the complexity involved in advising in fields such as investments, mortgages and pensions, it takes time for specialist advisors to gain the appropriate qualifications and undergo the relevant training to be able to advise on these specific subjects. Specialisation may be at the heart of enhanced productivity and improved efficiency, but it can also lead to tunnel vision, whereby neither advisor nor consumer can foresee blind spots until they materialise.  

Take property, for example. According to recent research from Retirement Advantage, over-55s in the UK could now access a cumulative £375bn in housing equity – this rose by £2bn just in the third quarter of this year (a 2.7% increase), and in some areas of the country the increase was nearly double this, with the East Midlands up 5.1%, the South West up 4.8% and the West Midlands up 4.6%. Meanwhile, research from SunLife found that four in ten of over 55s of are worried the money in their pension may not be enough to cover their retirement and are looking for alternative ways to increase their income in retirement.

This research clearly shows that people across the UK who own property either outright or with a mortgage are likely to have equity in their homes which they can tap into for retirement, and yet the silo-effect of the pension sector means the question of accessing this wealth may not even be raised. Even if a client has no intention of selling their home or downsizing, advice that identifies all options by looking at the bigger picture surely leads to better client outcomes.

Over 55s may be asset-rich, yet as they approach retirement, it’s apparent that they are concerned the funds in their pension will not be able to support them. With the increasing need to serve a growing population of older homeowners, the pension industry and financial advice in general must evolve to help retirees make better decisions. In light of this, the Intermediary Mortgage Lenders Association (Imla) called on advisers to "break down the silos" between pension and mortgage advice after figures from the ONS revealed UK homeowners were ageing faster than the wider population.

Perhaps the problem is not with specialisation, but the by-product it has created in silos of data and silos of how products are discussed. With each respective financial services provider holding on to their own piece of the pie, the consumer must hop between organisations or even between separate departments of the same organisation to get a full scope of their financial situation. In either case, the result for each advisor is a disconnected view of the customer.

We as an industry have a responsibility to provide clients with advice that keeps their best interests at heart, but how can we achieve this if half of the puzzle pieces are missing? The advice we deliver is based on the data we can see; consumer decisions are based on the advice they receive from their separate advisors and so the fallacy that pensions are a separate asset is perpetuated and the cycle continues.

Fortunately, there is a chance that a change in attitude within the savings culture could see the silo approach slowly coming to an end – or at the very least, face disruption from regulatory change and the new market entrants that come with it. According to rules set out in the retail distribution review and the mortgage market review, advisers can only be confident of giving the best advice to their customers if an assessment is completed that covers all elements of a client's wealth, including their plans for the future and their relationship with risk.

With the introduction of game-changing legislation set out in PSD2, the pensions industry stands on the cusp of revolution in the way that consumers interact with their finances and manage their pensions. Open banking data could be the catalyst that sparks industry collaboration to bring about connected customer insights to the benefit of both financial advisors and consumers. While there are still uncertainties as to when the long-promised pension dashboard platform will launch, innovative solutions that bring customer data into one place can provide consumers with an interlinked view of their financial assets.

Collaboration will be the key to empowering consumers to make better decisions now and in the future; mortgage brokers and retirement planning advisors, for instance, should be working together to determine all the investment and pension options that could benefit a client.

Through increased industry collaboration, financial advisors in every specialism gain deeper insight that enables them to enhance their customer experience and provide well-rounded advice that takes into account all the elements at play. Clinging to silo-mentality, on the other hand, will only hold us back from evolution and prevent customers from getting more from their pensions.

If its transformation we want and client satisfaction we strive for, we need to start thinking about the consumer as a whole, acknowledging their wealth for what it is: a web of multiple accounts, assets and liabilities that connect to create a unique financial profile. By breaking down the silos that constrain the pensions industry, we can support individuals to manage their financial futures better by putting them back where they belong: at the heart of the advice process.