What matters most when selecting pension providers?

0:12Sonia Rach: Hello and welcome to the FT Advisor podcast. Each week we pick a topic to discuss and this week we're diving into pension providers and what actually matters when choosing them. I'm Sonia Raj, Deputy News Editor at FT Advisor, and joining me today are Max Gist, Head of Business Development for People's Pension, and Amir Rocha-Lima, Managing Director at Strategic Wealth Partners. Good morning, both. Thank you for joining me today. Good morning. Good morning. So, pensions has been in the spotlight for a while now, and it seems like a timely moment to kind of discuss the factors that advisors are increasingly focused on when choosing a provider and what they tell us about where the market is heading.

0:49Sonia Rach: So Max, as someone that works closely with advisors, perhaps it's a good place to start. When kind of advisors are selecting a workplace pension provider, what are the biggest factors that are affecting that decision and how has that changed over the past few years? Sure. I think we're moving into a world where we're seeing advisors concentrate on value. And more topical right now is added value. You know, employers don't suddenly have this war chest of money to spend on benefits, let alone they actually see pensioners. It's probably the largest financial outgoing point on benefits. So advisors are increasingly looking to how can they add value through the workplace pension.

1:31And I think where that's potentially changed from several years ago, say five, ten years ago even, is that auto enrolment created a need, a compliance need, a service need. Whereas today we are way past auto enrolment that has been successful. And now it's looking at what is the value of what I potentially put in place at that point. How can I enhance it? How can I take advantage of it almost? Because providers have certainly come a long way in what they're offering to members compared to when auto enrolment first began.

2:02Sonia Rach: Yeah, no, absolutely. And I think auto enrolment has kind of changed the whole landscape of pensions altogether. So Amir, you coming in there from an advisor point of view, do you disagree, agree? What are some of the things that you think are deciding factors, I guess? Yeah, I think increasingly it's all about the value add that the provider can bring. So I tend to think about it in layers. And so where we start is firstly, can the pension provider accommodate our investment proposition? We build our own investment portfolios in-house, and so we need the provider that we're choosing to be able to, one, accommodate that and then allow us to administer those portfolios properly and efficiently over time.

2:47Once we've gone through that hurdle, we think about service. and I'm sure that the advisors listening to this podcast Sonia will agree unfortunately shortcomings from pension providers are reflected as part of the service that my firm is delivering to clients so I need to be very mindful of the service that the provider gives to the advisor and the service that the provider gives to the client because the client forgets very quickly that the provider and the advisor are not one and the same when things go pear-shaped especially in moments of significance in their life. So that's the second hurdle.

3:24Then the third hurdle is what is the most sensibly priced proposition that I can find that actually caters for those two tests? And I say sensibly priced because at the end of the day people need to get paid, technology needs to get played for and I'm conscious that I want that provider to be profitable so that they can be continuing to offer this service for the long term because pension relationships at our firm they last 20, 30, 40 years. So we would definitely like to be building relationships and partnerships with providers that are here for the very long term.

3:59Sonia Rach: Yeah, it's really interesting you say that because it is one of those things where when a client's pension transfer is taking a long time, the fault almost always falls on the advisor because the end client does not see the provider in the background. They're just like, I've given you my pension. Why is it taking so long? And, you know, pension transfers are a whole nother topic that we could have another podcast on. But the cost element is really interesting. So obviously, that's traditionally been a major consideration in workplace pensions. Are advisors, I guess, now looking beyond charges?

4:32Sonia Rach: And if they are, what would you say is the kind of one thing that you're prioritizing right now? So obviously, you've mentioned already that cost is becoming one of those elements that you're sort of happy to embrace if it's in the best interest. So what are you looking at instead? Yeah. And I think the best way to answer that question is to just break down a pension as it morphs and changes over sort of a typical life cycle, right? So during the accumulation years, I appreciate that cost might be slightly further up the consideration list. And that's because really what you're looking for is a provider that's able to help, or I'm looking for a provider that's able to help advisors in our firm administer and help the client build that pension pot towards eventually retiring.

5:17In retirement, though, that becomes a lot more complex. And so cost then is an important factor, but it only becomes a factor once other tests are being dealt with. You know, when a client starts taking income, inevitably in those first years of retirement, we're dealing with PAYE, not only from regular income, but then there's ad hoc withdrawals that are needed because they want to do things in life that they've always wanted to do. Unfortunately, we deal with people that retire with the best of intentions and then pass away for whatever reason. And then we're dealing with a widow or widower and they're grieving and they perhaps weren't the main financial person in the household.

5:53And now they're getting letters from pension providers that are confusing and giving them options that they need to choose and sometimes writing things in red, which makes people think, gosh, do I need to act now? Do I even have time to call Amir and his team? So all of that becomes really important, Samia. And of course, on top of that, along the way, this thing, this pension, this money is invested. And this portfolio needs to get rebalanced. It needs to have the flexibility for withdrawals to come out of different parts of it if needed. So as we get towards retirement, the list of things that are more important than cost become just bigger and bigger.

6:27And cost becomes a factor, of course, and continues to be a factor, but only where, in my view, the other tests are met as well.

6:33Sonia Rach: Yeah, no, that makes sense. Is that something you're also seeing, Max, I guess, with a lot of the other advisors that you work with? So from a workplace pension point of view, it's cost is always going to be there. I think it's one of those things that is kind of a headline and the lower cost is almost like just going to diminish. Actually, cost will always be there because this goes back to scale. So everyone believes that scale enables you to create better value for money. So if providers are using that scale correctly, they can actually deliver good value for money for good cost. And that's where, as a firm, for instance, we're looking at.

7:12So if you have one large default fund for the mass in a workplace pension, you can use that scale, use it correctly. You can deliver things like infrastructure assets, private markets, et cetera, for potentially no additional cost to members at the end. It's just all about how much scale do you have and how you're using it will deliver value. And cost will, again, always be there as an underpin of so I can have one, two, three, four providers. What are they delivering for that cost? If they're similar, then cost will still be really important. I was just going to add to what Max was saying. I think the cheapest pension, it can become quite expensive once you start adding the cost of friction.

7:52And we've seen this not only at our practice, but the FCA are seeing this. And in their latest data that they released this summer, they mentioned that when reviewing those old unit link type pensions, they found a lot of friction that is a detriment to value. And so how does that play out in an advisory firm nowadays, Sonia? Well, very straightforwardly, if a provider is expecting us to send a client a PDF that they need to download, print, sign, upload again, and then scan it over to us so we can then send it to a provider, that just doesn't gel with the sort of client that is self-selecting to work with an advisory firm to manage their personal finances.

8:37I mean, they can open a bank account for themselves and their children in minutes on their phone. They don't suddenly revert to 2004 when it comes to opening or managing a pension. So a pension provider needs to be mindful of reinvesting constantly in their own proposition, you know, where secure digital links can be sent to an advisory firm first. We can pre-populate the form for clients with the information we already have. Perhaps even that link can link with our systems so that we don't need to double enter information into different places. I think the bar is just increasing for what advisory practices expect from functionality so that that service proposition is a strong proposition that they are able to put forward to their client.

9:22And again, if you're saving 10 basis points, but not getting any of that and getting a provider that is just not willing to keep up with the times, then I think that, again, the cost of that saving becomes quite expensive when you add all of that friction back into that relationship.

9:38Sonia Rach: Yeah, definitely. And I think pension transfer processes are very dated, aren't they? A lot of firms have this same issue of, you know, the whole process puts people off, they might start their process and then suddenly end up in a situation where I don't have the time, I don't have the information. It's too many things to fill in. So that in itself is something we see from here from advisors constantly, but even from clients, you know, sometimes we get emails from people saying, I've got this pension transfer, it's taken so long because I don't have the information at hand. And then to get the information, it's calling different people.

10:12Sonia Rach: So that in itself is a problem. I think one of the things I was going to ask you about is consolidation in this space. So obviously with more and more consolidation coming in, is there sort of a risk that that'll mean less competition and less sort of options, I guess, available for people to have? From a workplace pension provider point of view, I think it will drive better value for money as long as it's used correctly. So again, going back to that scale is the enabler, but it's how you use to deliver value for money. Firm believe that scale does deliver better value for money. I think there is a little bit about, you know, some of the pension providers, maybe like fintechs, et cetera, that innovation they can create has potentially brought better technology through, et cetera.

11:00But again, with larger pension providers, they should be able to react to the market. And I think actually a smaller market potentially gets more competitive. So if it's more competitive, we're all hunting for our edge because if you have a list of four providers and they're all similar again you know the the advisor's looking for the value so we'll all be hunting for innovation within that area so i don't potentially see it as a restriction if anything it

11:25Sonia Rach: might heighten the composition that we see yeah but and i guess one of the kind of opposing views to that or kind of to play devil's advocates obviously with consolidation coming in will will that obviously make it harder for smaller providers to compete and and naturally it may so but then will they also be the ones that potentially can provide the additional value because they operate at a smaller scale in the sense they can provide that service element? Yeah, it's an interesting one on servicing technology. They potentially can, but investment, they can't because that scale leads to accessing innovative asset classes.

12:02It gives access to investment teams, massive partnerships out there with fund managers to really drive down the cost. You know, if we go out on the street for a BlackRock fund or whoever it might be, that will be expensive as us as an individual. However, if you go through your pension provider, there's huge scale with these fund partners. Those large partnerships really drive down the cost. So I think they can challenge in areas like technology and service because they're starting up tomorrow. I don't think they can compete potentially with value through scale.

12:33Sonia Rach: And in terms of, I guess, retirement support, obviously, that appears to be more and more of a kind of an area that advisors are having to focus on, especially with all the changes coming in with the government as well. What are, I guess, advisors expecting providers to offer members as they approach and enter retirement? So where you've obviously touched on a lot of the tech side of things, you know, maybe not having to key in information and things like that. Is there anything else that you think providers need to be doing? Yeah, I think that's a really interesting angle, Sonia. And I think retirement support in particular is an interesting differentiator if done well.

13:08And so that's a big if, right? So from my side, when I think about this, I want a provider to create that differentiator in a way that supports the client's advised journey. I don't want them to create something that potentially creates a conflict and creates two parallel processes that just confuses the client and doesn't add any value. So, for example, if we think of the advisor implementing a financial plan for a client that includes pension consolidation and eventually moving into drawdown and taking perhaps a lump sum as well as a regular income, a differentiator for a provider might be creating a dashboard, a framework that lets the client know where they are in that journey.

13:53Today, we do this at our practice. We do this manually, and we are working with providers who are going to start integrating their data feeds into our systems so that those updates come directly from them to the client dashboard. But that's the sort of innovation that I think would complement the advice journey that the client is going through and would let them feel more confident about where they are in that journey. Because, Sonia, there's a point in that pension consolidation process or in that lump sum withdrawal process where money is in between, in between providers or in between a pension bank account and the client's bank account.

14:33And if the client just happens to log in at that one hour where it's in between those things, it can create cause for concern. So that's the sort of thing that I think providers could create and could work on and invest in that helps the client have a better experience, a better journey when it comes to this massive milestone, which this product is all about, right? Getting to a point where your assets are able to fund your lifestyle.

14:59Sonia Rach: Yeah. If I may jump in. So coming from a different angle, obviously we're catering for potentially 7 million members, for instance. We have to think about how we service on that. So we need to look at the advice gap. So we have lots of members that don't gain advice because either they can't afford it, don't know it's there, etc. So what we see from our membership, what they're telling us they would like, is actually this whole idea. We've been talking about pot of money for probably too long because that's what FlexWire Access created. When you think of a pension, it is actually income. And it's good to see us going back, you know, in the PUK looking at, you know, what does a moderate retirement look like?

15:39Like what does a lower income look like? And we're talking about income figures much more, which I think is really important because members can come to us and they want flexibility. So they want flexibility to do what they want, but they want guidance because actually that flexibility, that choice creates complexity. So now that's where kind of guided income solutions, et cetera, targeted support are coming in. And I think they're really important because they will help the majority of members with their needs a lot better than today where it's flexibility of just you can do whatever you like but can you navigate it probably not um so really excited to see things like guided income coming through um where members can go into a defaulted journey if we think about accumulation in pensions the pension provider in a workplace pension does absolutely everything yeah funny enough when they come to the age of 55 shortly 57 we almost ask them to be a pension expert in the sense of hey what would you like to do what investments would you like to be in we can give you some guidance but you need to tell us what you'd like to do actually i'm really excited to see defaulted guided income decumulation products that will support the mass of members um through

16:50Sonia Rach: that journey yeah and that's a really positive thing i wrote a story recently and it was just saying how so many people and generation x specifically aren't currently in a situation where they do not know what their pension is going to look like and they just don't can't envision what it will look like. So it's a bit scary to think that they've got this pot of money, but they almost don't know what to do. But I think one of the things I was going to ask you about is obviously, from a workplace pension provider point of view, how much responsibility, I guess, do you think workplace pension providers should kind of have for improving the wider financial well-being rather than just helping them accumulate the pot?

17:28Sonia Rach: So obviously, providing that a bit more of a holistic experience and not just at the end of the pension but but the well-being overall sure i think our responsibility especially as one of the largest workplace pension providers is we know engagement supports better member outcomes so our job is to engage with members about their finances and then actually support financial education so i don't think our role is potentially product orientated or service orientated it's actually financial education as a whole so the pension is really important the pension education in the UK is really low considering the importance of the product so we've got a responsibility there but actually opening up financial well-being and showing where it fits in a longer term plan actually creates better engagement because otherwise if you just solely talk about the pension it's so long term it's really hard to engage with it's a bit like insurance isn't it you don't need it until you need it yeah and so we're really heavily concentrating on financial well-being and again I think that needs to be technology-led so for instance we have partners with Nudge so Nudge is a leading financial well-being provider so that's budget planning sort of tools to help them understand their own financial well-being and those results are proven to increase not only mental health within the workplace but actually physical health as well because if you feel better about your finances is such a huge part of your life that actually your physical health improves as well so I think our role is financial education to to yeah and I think that's across the board isn't it there is no there is a shortage of financial education from from kind of the youth to adulthood so and then might hopefully back me up here um but essentially I think sometimes where pension providers actually then try to delve into just multiple products yeah I don't think that actually necessarily delivers value because there's specialists in whatever it might be, ISAs and different products that might be helping shorter or medium term needs.

19:28And I think there's other providers that could do that, not necessarily the pension as well. So I think it's not, it shouldn't just be seen through a product lens of have all these products when actually, you know, it's a mix and it's about the education and gaining guidance and advice on what's best for those people. Yeah, no, look, I agree. And I think for me, it's all about this business of, you know, if pension providers, if government, if professional bodies, if independent financial planning practices and financial planners, if all of us create little ripples in our local communities or with our client base or perhaps even online when it comes to financial education, all those ripples together, they become this one giant wave.

20:09I really believe that. And I'm a big champion of that. But I also think, Sonia, that there's another side to this coin, which goes towards something that you were saying earlier, which is, you know, if information alone was enough, everyone would be a billionaire and have a six pack. Right. But there's all there's all the information you could possibly ask for online. And so why is it different with finance with finances? Why is it different with pensions in particular? well it's because I think most people don't wake up in the morning thinking geez you know what I need to work out this saving rate and what it's going to actually build in terms of a pot for me in the future and then what that will be able to sustainably allow me to draw in terms of income people don't do that right they either think about it when it's a bit too late or when it's too early they can't really envisage it they can't really put their hands on it it's something too abstract.

20:58And so I think that financial education, it should be delivered to people in a drip feed mechanism. And again, part of a service proposition that complements an advisory journey is for the provider not to try to step on advisors' toes if it's a provider that has advised clients on its books, but that creates that drip feed of information on the way that It perhaps prompts for conversations. It prompts for things that are important at that particular age bracket, not as a FOMO. Am I missing out compared to my peers? No, but look, you're doing this and this is what it's projected to be. And this is what it's projected to be able to help you fund in terms of a lifestyle.

21:41But if you did this a bit more or if you did this a bit different with your investment, you could increase the likelihood of X, Y, Z happening. contact an advisor or contact your advisor who's already nominated on this policy have this conversation with them and make sure that if it is an advisor-led pension product make sure that the advisor is informed that these things happen along the way that is an opportunity for advisors to have rich conversations with clients for clients to perhaps start filtering more money towards their future self instead of immediate spending and And obviously everyone's a winner, right?

22:17The client's a winner. The provider's a winner because they're gathering more assets. The advisor's a winner because actually seeing their advice turn into something that they set out for it to turn. The achievement of those most cherished life goals that clients share with us on a weekly basis.

22:31Sonia Rach: Yeah, no, definitely. And I think it does come down to the fact that that education element needs to just come in earlier and earlier. There is sort of no, I feel like there's, you can't start too young. I mean, I'm trying to teach my two-year-old about money at the moment. So, you know, you really can't start too young. And probably just coming full circle, once they're engaged, the experience needs to match. There is no point engaging people into a bad experience. So the tools, the calculators, all the stuff that Mia's talking about, as workplace pension providers, we need to make sure once people are engaged, that experience matches.

23:02And that's important for having a great app, great tools, you know, financial well-being integrated, personalised nudges. So, you know, it's about them as close as possible as we know. you know we're not advising clients but we needed to be relevant content that's being delivered yeah so yeah it's kind of a circle of engagement into the experience well yeah exactly and when you think

23:21Sonia Rach: about kind of algorithms and things on social media and and stuff once you you know you like one thing suddenly your whole feed is showing you just just a focus on that one thing and it just almost feels like if that sort of technology or systems were replicated on these pension apps you know where someone's just logged in to see what does my retirement look like and then suddenly you're being almost spammed but in a good way because that will then encourage them to ask the right questions or engage with the right um kind of people advisors or whoever it may be it does seem like something that should be an easy fix in the age of ai and so much technology agree and it's protecting it's actually protecting members against that so we have a responsibility to provide this financial education because actually we talk about little gaps or the line between guidance and advice you know there's huge amounts of policy papers there's huge amount of regulation etc however literally today if i wanted to i can ask google what i should do with my pension yeah and it will give me unregulated financial advice dash opinion you know i can get that instantly and i do just feel as an industry therefore we have this responsibility to educate members on what is you know correct where these lines do draw between actually you can do this yourself you can have guidance or actually should be uh getting the advice yeah absolutely i think one of the things i was going to ask you about is um there's obviously a lot of emphasis on value and good outcomes and you know we touched on scale and the and sort of what that provides in current pension reforms but those can obviously be really difficult concepts to measure So what should advisors, I guess, be looking at when assessing whether a scheme provides good value?

25:05Workplace schemes. So I think it's the main four cornerstones. So when we look at value, you're looking at the investment solution. So what is that investment solution delivering for the members? Diversification, asset classes within it, the conviction behind it. You know, is it just been dumped into a load of passives, et cetera, and hope it goes OK? or is there actual real conviction behind it? I believe in service. So service plays a huge part. And mainly service comes in when someone actually needs us as well. So you've kind of got this engagement experience and then service is when someone's actually, I just need some help.

25:42I'm going to call someone. How good is that service in the background? And then you've got the employer and the member experience and engagement kind of circle that we talked about behind that. I think those four key areas link to are you delivering value? And that's very much what the value for money framework, the Pension Scheme Act, is looking at when you see all of those things play through. And the underpin to that, as we discussed, is then it comes to cost. I do think cost comes last and that's where it's not going away. I just think it's being pushed to the back to let's talk about objectives.

26:17Let's talk about what we're actually looking for here. Who's performing well? we'll go through all these four key cornerstones we'll put them in a table and then actually

26:25Sonia Rach: we'll look at the cost of that yeah and I guess then if cost comes last it allows the value to almost show itself through the other elements is that is that something you'd agree yeah I'd say broadly similar Sonia from my perspective it would be starting with the investment proposition and I just want to clarify that for listeners so I'm not saying I need access to 20 ,000 funds for the sake of it. That's not it. It's we run a particular investment proposition in-house, which is evidence-backed, a lot of, you know, 20, 30, 50 years worth of academic data behind it. And so there's a reason why we're particular about working with providers that allow us to, one, implement that and then actually manage that on a particular basis.

27:07It requires rebalancing, it requires certain things to happen on a regular basis. And so if the provider can't cater for that, then it's just not a good fit to begin with. I think secondly, service for sure, but more importantly, or sorry, just as importantly, the digital experience that the client gets. And I think going forward, that is just one and the same, right? Service has to do with ease of use and less friction where just there is no reason to have friction anymore. So digital signatures, integration with the advisor's own portal rather than making clients have yet another login, yet another password, et cetera, et cetera.

27:44So I think that's very important, the service and the digital experience. I think because we're talking about pensions, the actual retirement options of the scheme are very important. After all, this product is being accumulated into for the purpose of eventually taking money out of it, right? So we need pension providers to actually offer a holistic range of retirement options. And it will not surprise you to know that that is not the case out there in the market today. And then I think the fourth pillar there for me is cost. So it has to be sensibly priced because as I said, I'm just only too conscious of the fact that technology needs to be paid for, good people need to be paid for, and we want that company to be around for a long time.

28:26In my view, there's something that does underpin all of that. And I think it's the provider's resilience, if I may call it that. So I think we need to have clear visibility that there is good governance inside that pension provider, that the financial structure and the financial capability of that provider is strong. More and more, I'm favoring providers that actually own their own technology. So they're not dependent on third party technology that might change or contracts might be lost or whatever it is. And so that underpins those other four pillars for me. It's trying to identify those providers that we can build a very long term relationship with.

29:03Sonia Rach: Yeah, I mean, it's positive to hear so much overlap between those two for sure. I guess, finally, what do you think that advisors will be asking workplace pension providers in five years' time that they aren't asking today? So if we are hopeful that all of these things that we've discussed today are going to be there in five years' time, what do you think is to come? I think they will be asking workplace pension providers, especially in a consolidated market, as you say, if we go through all of this, is they will be asking the workplace providers what the edge is to be partnering with them so so what is your edge over the competition especially in a consolidated world um i think they will always continually look for uh inclusivity they'll look for flexibility and they'll look for that value um and that has been shown in kind of our history of of why have we been successful is being inclusive um coming back to your the purpose of being there for the long term you know so profit for member I think is really important in terms of fiduciary duty doing the right thing by advisor client member really will come through I think in terms of this world.

30:10Sonia Rach: Sure and what do you think Amir what will you be asking in five years for in five years time? Yeah more and more Sonia for me it's identifying providers that are able to support the client's retirement journey but that that support isn't in conflict with the advisor's role inside that person's life, it's parallel to, it complements the advisory journey that that client is going through. And I think a lot of financial planners listening to this podcast today will be thinking the same thing. How can the pension providers that I'm working with complement the advisory journey that I'm taking my clients through and that I have the privilege to be part of, which includes some amazing moments in their life, but also includes some sad moments in their life.

30:53And we need to be there with a provider that is empathetic and understands those different phases of someone's life throughout that journey.

31:00Sonia Rach: Yeah, because I guess ultimately you're the front face of that sitting in front of the client. So it completely makes sense. Well, thank you both. Unfortunately, that's all we've got time for today. But I think it's been a really interesting conversation. Tune in again next week as we discuss another hot topic in the financial services industry.

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