Many of the retirement products and services currently available in the marketplace are no longer fit for purpose. As society changes and people live and work in different ways, so too must retirement planning evolve to provide more choice, transparency, information, and flexibility for customers.
Demographic and Macroeconomic Trends
Listed below are the key demographic and macroeconomic trends impacting the retirement theme, as identified by GlobalData.
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Coronavirus is changing all aspects of retirement planning
Coronavirus has changed the financial lives of millions of people overnight, increasing the desire to engage in long-term financial planning while lockdown measures have evolved their channel preferences. This implies a unique opportunity to engage pre-retirement customers early through digital touchpoints. The UK online pension aggregator PensionBee reported a 218% increase in customer contact through chat or email between March 1, 2020 and July 31, 2020 compared to the same period of 2019.
Coronavirus has also changed the economics of retirement, certainly by challenging the traditional 60-40 asset mix (60% equities, 40% fixed income). Many incumbent providers are optimistic of a “flight to (perceived) safety” i.e. away from startups amid COVID-19.
Gig economy and freelance workers left out of retirement
The Federal Reserve estimates that there were 75 million gig workers in the US in 2019, while gig insurer Roobyx estimates that there are 162 million freelancers in the Western world. More individuals will turn to the gig economy as a result of coronavirus-related job losses. As this group cannot be granted pension protections and are therefore at the risk of being left out of retirement planning.
Low-cost digital platforms are recognising the potential of the gig economy. In September 2018, Betterment partnered with Steady, a start-up helping gig economy workers find employment, and offered Steady users free financial advice and investment services for a year. Catch is another robo-advisor catering to gig workers in the US.
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By GlobalDataAgeing population exacerbates pension gap
Due to advancements in healthcare, the world’s population is getting older. By 2050, 15% of the world’s population will be older than 65 according to the United Nations (UN). Already over 65-year-olds are the fastest-growing segment of the population. This will have a significant impact on social services. Authorities across Europe are already pushing younger consumers to save more for their retirement amid a growing state pension gap.
Low margins
Investors are backing retirement start-ups due to what they see as rising demand for digital advice on long-term savings and retirement due to low margins and profitability challenges for incumbent providers. Older customers hold considerable wealth. For new entrants a retirement conversation can be a critical conversion point at a time when other anchors of long-term relationships might not be forthcoming.
Younger generations need more help with retirement
Data shows that it’s getting harder for each generation to earn as much as previous generations. Millennials will have to save £80,000 ($109719.60) more than their grandparents in order to retire at the same age, and right now pensions are the only vehicle that will give them an additional 25% contribution from the government as standard.
These results signal the need for plan sponsors to rethink how to position retirement and to educate employees about the importance of retirement savings plans, health savings accounts as retirement savings vehicles, and other employer benefits.
What “retirement” means is changing
Rather than extending an individual’s life, increasingly people fear that stopping work entirely risks atrophy. Across some areas of the workforce, there’s also a growing sense that pensions are not an attractive investment vehicle anymore. Many self-employed people feel property is a safer way to save for retirement. Many 20 to 29-year-olds have opted out of any investment in retirement resources.
This is perhaps partly due to instant gratification culture, with younger individuals wanting more disposable income each month, but alternatively it could be a delayed aftereffect of the financial crisis.
Changing demographics
Until now the key audience for retirement has always been older. However, beginning 2030, an estimated $4tn of wealth is going to be passed on to millennials in the UK and North America from their parents. Millennials typically manage far more of their lives, including their finances, through digital channels.
Building robo-advisory capabilities is a highly effective engagement tool for younger generations. It is doubly important because only around 20% of UK advisors currently have an existing relationship with their current clients’ beneficiaries, many of whom are millennials.
This is an edited extract from the Retirement Planning – Thematic Research report produced by GlobalData Thematic Research.
