The subject of pensions is getting a flurry of attention in the press, with politicians vying for position on who has the best strategy for dealing what is increasingly looking like a nightmare waiting to happen. The inadequacies of the UK State pension, funded by our NI contributions, leave the UK’s pensioners amongst the poorest in Europe (including some eastern EU states). However, we now face further changes that are likely to exacerbate the situation. We have Personal Accounts and the auto-enrolment on the horizon from 2012 – albeit that even this implementation is being delayed/phased in. We have the prospect that state retirement dates will be pushed back progressively from 2016. We are still suffering the damage to pensions funds brought about by the Government decision to stop tax relief on dividends in 1997 that cost approx £5 billion per year. Indeed, for many people in defined contributions schemes, their pension funds are little more than they have paid in. All of which adds up to the reality that we have insufficient people saving insufficient money to provide them with a decent income in retirement.

However, simply complaining about it will not fix the problem. We are living longer and so sooner or later someone was going to have to ‘bite the bullet’ over retirement ages. The ‘financial crisis’ is not the root cause, but it has certainly brought the situation to a head and perhaps perversely, it may actually have resulted in people now being more willing to accept the inevitability of change than they may otherwise have done without the crash.

How have other countries dealt with the prospect of a growing aged population? Well, many will be familiar with the comparatively generous German and French benefits systems. However, there are interesting lessons that we missed from Australia and the US who have has their ‘Superannuation’ and ‘401(k)’ schemes running for many years. The Superannuation scheme in Australia that requires a minimum of 9% pa has resulted in over 95% of Australians saving for retirement compared with less than 50% in the UK. This is compounded when looking at part-time workers with three-quarters saving in Australia compared to only 15% in the UK. Whilst we may be learning – belatedly – from what others have been doing, not only have we not yet dealt with it, but there is a growing feeling that PAs could create false expectations that they are a comprehensive solution to the problem, whereas for many it is a case of too little too late.

We have talked in the past about the damaging effect of ‘misselling’ scandals on public confidence in the Financial Services Industry. Low levels of confidence and a continuing lack of financial awareness amongst the general population, combined with a general apathy, have caused people to put off financial planning decisions that has resulted in them either delaying or failing to make pension arrangements.

Years ago, an adviser asked me if I would leave my car parked on a meter if it cost me £4 per minute to do so. As a Yorkshireman, I inevitably said that I wouldn’t… he went on to explain that by delaying setting up a pension could cost this amount in lost benefits. We can argue about the maths of illustration assumptions and the comparative cost of parking these days – the conversation was in the mid 1980s – but the analogy is still quite effective.

For some, they simply cannot afford to save the amounts now needed and there is not enough time to fix the looming ‘car crash’ that will be their retirement. Let us hope that Generation Y will learn the harsh lessons from Generation X. Competent Financial Planning and advice is as important to ones quality of life as is decent healthcare and education.

Where you sit in the Financial Services supply chain will affect your perspective of whether you have the same, similar or different issues when looking at some of the key challenges set out in last week’s blog.

For the many Providers, in an increasingly global market, they would probably like to exploit synergies in product manufacturing and operations. Whether they could design a set of product ‘chassis’ may be debatable but parochial regional interests can get in the way even if it were possible. Many see the aspiration of a common, consistent technology infrastructure as a ‘pipe dream’ but Providers are going to have to re-examine what is possible and acceptable. Developing, maintaining and servicing products on legacy technology is expensive and time consuming. To compete in the future speed to market is going to be critical, as is the ability to adapt to the different needs of consumers along with the capability to change products and services based on customer feedback, along with emerging trends and opportunities.

In the past, many products have been too complex and so taken more development effort, time, money and ongoing service than was necessary for many of the customers. However, with little or no ‘experiential’ data or feedback, providers continued in blissful ignorance. Indeed, it could be argued (as the FSA would do so) that Providers used commission to ensure that they achieved sales of poor products. Many IT systems are a constraint to innovation and speed to market and whilst there is always a concern about what technology alternative to choose, a failure to act and not do so with knowledge and speed, is a certain recipe for future failure. Providers have wanted to ‘own’ their IT operations and so many have IT departments that are bigger than technology companies. Some have ‘outsourced’ their operations, but this is disguising rather than solving the problem. The world has moved on and more and more businesses are looking to adopt a SaaS strategy.

With the effect changing remuneration from ‘Provider determined’ commission payment outlined in the RDR, Providers are going to have to look very hard at the operational costs of their business. Products will have to be price and feature competitive, as well as being able to offer a quality service. How they choose to distribute products will also be a key issue. There is real a danger that the ‘commoditisation’ of products could leave many unable to compete in an Adviser (IFA) only route. Do they aim to be in a niche and if so which one? Do they operate a tied/multi-tied model or work on a ‘direct to consumer’ model. Each of these has different product, remuneration servicing implications. There is little doubt that the next few years will see some significant consolidation and it is likely to the strategically strong innovators that survive.

When looking at the analogy of car manufacturing, do Providers aim to have an entry level model such as the Tata Nano for one market segment and separate ‘luxury’ marque such as the Jaguar for the better off? Taking this analogy back to how Ford created their product development and we could see an underlying chassis and certain ‘parts’ such as on the Mondeo being used with the jaguar X-Type brand. Common architecture and component re-use should be sought and exploited where possible. A ‘Wrap’ or ‘offset’ concept may also be worth exploring; it may be a degree of ‘snob value’ but if all those who say they are going to concentrate on the ‘Wealth Management’ space, it will be very crowded and very competitive! The mass market can still be served profitably, it will require a different approach to product development and distribution. A simple, low cost product that can be easily understood and bought, may not meet the ‘ideal’ of some untopians (including FSA personnel), but if it is possible to ‘upgrade’ or ‘trade-up’ – perhaps with advice, the objective of getting from A to B may well be better served by a ‘Tata Nano’ than not getting from A to B at all.

In next week’s final instalment, I shall wrap-up with some distributor views.

AT8 has recently launched into the world of Twitter and it has been a fascinating experience. Our initial aim was to create a news service to share information amongst our existing contacts – from IFAs and other intermediaries to Insurance Providers and Technology companies. Twitter is, as you may know, a simple micro-blogging site where you comment on what you are doing, thinking, reading or learning about. The beauty, and often the frustration of it is that you have to do this in 140 characters or less – forcing the author to be brief and concise. The rapid flow of information then begins. Perfect for news dissemination we thought.

However, the reality was that in the few days we have been running the service, only a small number of our existing contacts have signed up. Often they are cynical that Twitter is just a fad, or they simply don’t have the desire to sign up to a new social networking site. It’s understandable, but a real shame as they are missing out on a wealth of information and contacts.

The surprise has been the number of new ‘friends’ that we have made with people who already use Twitter. Indeed, in the last week alone, with a little work, we have moved up from a handful of followers to nearly 100 – and this is now growing daily. The great thing is these are nearly all directly in our market domain.

So what is the benefit of having these contacts? Well, the wealth of thoughts and ideas to which we have been exposed is immense. We have seen people discussing the financial issues of the day, reviewing IT systems and financial planning tools and choosing between Wrap platforms. We have exposed our brand and ideas to a new audience and we now have access to a potential research and problem solving forum. Used productively, it’s extremely powerful.

We have begun to see more corporate activity on Twitter as well. A number of IFA organisations such as Informed Choice have a presence. Software and services companies to the financial services industry are beginning to explore the service as well – Leadbay announced their Twitter service this week (although at the time of writing, it is still without content) and Mortgage Brain already have a presence. A few other IT companies serving the financial sector are also present including IRESS and IMAPX. Surprisingly though, many of the mainstream IT companies are yet to embrace Twitter – personally I think they are missing out.

You can follow AT8 on Twitter at www.twitter.com/at8group.