Does your pension provider still find you attractive?

It has been a few years since I was a student, twenty-three actually, but I can still recall the intense competition to give me my bank account.  Banks and building societies recognised the opportunity to build a profitable relationship (that initially was based on some substantial borrowing) and I felt valued by my bank manager, who back then, knew me personally.

When choosing my first mortgage there was a fair bit of competition for my attention too. A conversation about my choice in mortgage flowed effortlessly into suggestions of life assurance, income protection and home insurance.  More recently the return of recession has tempered the excesses of competition, but you can still see providers putting some effort into establishing a profitable ‘relationship’ at this mortgage need moment.

Unfortunately, as you get older it does appear you become much less attractive to many financial providers. The energy applied to helping you select the best retirement income product compares somewhat unfavourably to the exuberance of a current account or mortgage offer.

In fact, turning your pension pot into an annuity (i.e. an annual income) has some of the hallmarks of a divorce – after a decade or two of largely silence, there is flurry of official paperwork from your provider, a ‘maintenance payment’ is agreed and you go your separate way.

This year there will be approximately 600,000 adults reaching retirement in the UK and almost as many annuity purchases. Surprisingly, only 37% shop around for the best deal for a purchase that could last them 20 years or more. Compare that to car insurance where 89% would claim to have switched providers at least once over a 10 year period.

On the face of it, it doesn’t make sense; the annuity is the bigger, more important decision. Furthermore, those retiring are increasingly without the benefit of final salary schemes.  But when you consider the level of advertising and innovation ‘noise’, perhaps it does.

My suspicion is that change really requires a different perspective – in particular, seeing the retirement income purchase as a gateway to a valuable customer relationship, rather than product sale.

At the moment converting your pension pot into a retirement income for life is often treated as the last major opportunity to make some money by a pension provider. Given these customers may be living for another twenty years this feels less than ambitious (and remember, you are 3 or 4 times more likely to sell something to an existing customer than a prospect).

Linked to a retirement income conversation is a wider set of decisions, including inheritance planning, other savings, health insurance, downsizing, house refurbishment, holidays, state pension and allowance, etc.  Retirement income will be at the heart of this conversation and starting it 4 or 5 years ahead of retirement will help.

In seeking to meet a variety of financial needs of those approaching retirement, I would hope an astute organisation can reconcile greater profit with better serviced customers.

At the moment, those with plenty of money are probably being served by financial advisers. So the question is really who could benefit from befriending and building relationships with older mass market or middle-income consumers?

It probably isn’t financial advisers, who even if willing, are seen (I stress, unfairly) with same warmth as a dentist by many in this audience.

More likely, it will be a major bank/building society keen to attract or retain an ageing customer segment with a portfolio of solutions that are relevant over the retirement journey.

Perhaps the likes of Saga will be a catalyst. They expanded their annuity range last year and could offer straightforward ‘money guidance’ in alliance with an IFA network via the phone for their community of customers who are already comfortable dealing direct.  Looking further ahead, Tesco, I am sure will not overlook the potential of this life-stage.

Of the major players, Aviva looks a good bet. Unified under a single brand and with a full insurance range alongside equity release they well placed to provide a comprehensive direct to consumer proposition (and make money).

Hopefully interest and energy levels will have picked up the time of my retirement.

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