How to capture the workplace pensions D2C market opportunity

The workplace pensions market is facing a rapidly growing direct-to-consumer (D2C) opportunity. Driven by auto-enrolment and consolidation, pension providers could stand to gain market share and drive member value.

Understanding the opportunity

This rapid growth is driven by two main factors: auto-enrolment and consolidation. The introduction of auto-enrolment has significantly increased pensions provision and management by third-party providers. This trend is particularly pronounced among small and medium enterprises (SMEs), which often lack the appetite to manage pensions themselves due to cost and operational risks.

Meanwhile, consolidation has become a prevalent strategy among larger employers in recent years. Many have opted to consolidate into large pension provider schemes, such as master trusts, in order to reduce scheme running costs, increase the variety of investment and retirement options, and leverage the customer engagement platforms available to members.

While employers can still provide active members with additional pensions education and support, communications are driven predominantly by the third-party providers. This dynamic creates the opportunity for providers to build a relationship directly with active members. When members leave the company, although they are no longer investing in the scheme, the provider still retains the relationship with the deferred member. Through effective engagement, providers can retain deferred members for the rest of their working lifetimes and through the decumulation phase of their retirement savings lifecycle, and some members may choose to transfer their other DC pots into the scheme.

Moreover, the UK Government has expressed interest in moving to a lifetime provider model, similar to the model seen in Australia. While this proposal has been unpopular within the industry and is not currently expected to be pursued by the UK Government, if it were to be adopted, we would expect to see a significant emergence of a D2C pensions market opportunity from workplace pensions (as seen in Australia), with increased competition to retain members’ assets.

Five actions providers should take

To best leverage this D2C opportunity, pension providers should:

1. Leverage member data and behavioural science techniques for targeted interactions: Pension providers hold vast amounts of member data which can be analysed to build member profiles and produce personalised communications. This can be used in conjunction with behavioural techniques like nudging to influence members into making favourable decisions. Providers may send communications linked to significant life events such as promotions, birthdays, and the birth of children when members will be more likely to make active decisions about their retirement savings.
2. Develop loyalty to the provider, rather than employer, through digital communication channels: By using mobile applications and web portals, members are provided with a pensions platform they can use throughout the whole membership lifecycle, increasing the likelihood of continued engagement once leaving active service. The application can continue to send notifications to the deferred member to maintain the relationship and should be user-friendly and interactive. More sophisticated providers may wish to gamify activity within the tool to encourage further engagement, for example, offering augmented services in return for greater participation.
3. Develop a full service offering for members pensions savings needs by providing a diverse range of services: Within mobile applications/platforms, providers should offer members a wide range of self-service options such as changes to investment strategies, contributions, transferring in other funds and information on fees and charges. Beyond this, providers should look to support these decisions with retirement planning tools, educational materials and guidance, including leveraging AI for integrated robo-advice tools. By providing these wider services the provider will improve customer engagement, making them more likely to be retained.
4. Address a broad range of customer needs through efficient multi-channel engagement: Many pension scheme members are still digitally isolated, vulnerable, or simply prefer non-digital communication channels and organisations must provide for them. AI can still be used in such cases to improve efficiency through customer call routing and using voice recognition for member identification. Similar to robo-advice, generative AI can also be used to upskill or enable customer service operatives, providing them with scripts personalised to the member’s specific circumstances, including guidance on appropriate next actions, to give members quick and valuable service.
5. Facilitation of speedy transfers: By building strong relationships with members, providers can increase their assets under management by encouraging members to transfer in their other pension pots. The transfer process should be made as simple and quick for members as possible, with the member being able to self-serve via apps and online portals and the provider investing in technology to accelerate the timescales.

While these steps may appear straightforward, significant technological investment is required for many providers.

At Baringa, we work with clients to better understand their consumer base and shape the investment activities required to deliver the greatest impact on member value.

Get in touch if you'd like to discuss further.