Can technology solve the retirement crisis?
Most banks have online pension planners. Input your assets, liabilities and age (in my case 25) into a budgeting tool and learn how much cash you’ll need before you snuff it. A retail bank’s rudimentary pension tool can be useful; they’re simply presented and diligently managed. Yet as we live longer, as living expenses rise and low interest rates erode savings and as state pensions reduce, we’ll need intuitive, predictive solutions.
That’s ok, I hear you say. There’s a bot for that. Not so fast. Software personalisation is a gradual process, and through Artificial Intelligence (AI), we’re taking baby steps towards it. In Digital Money Management, the aspiration is to get away from siloed budgeting tools and create software able to account for more than one data source, accounting for your savings, spending, utility bills, your age, job, health and more; to predict and account for your future. Transaction categorisation technology is a first step towards understanding how you spend and save your money, but creating bespoke pensions to sustain millions of people in old age means tackling a profound problem: we’re not saving enough.
Mark Pritchard of financial advisors Black Swan Financial Management is sobering in his assessment:
“The majority of people saving into defined contribution schemes are massively underfunding their future. People don’t realise how little the government will give them and how much they’ll actually spend in old age. And although mandatory employee auto-enrolment is welcome, many are getting a false sense of security, because most pension contributions are insufficient.”
Leading financial advisory firm, the deVere Group says that 80% of workers are not saving enough for retirement. But how much should we be saving? The BBC quizzed a firm of actuaries to learn what’s needed to earn a pension of at least £20,000. Even at the age of 25, you need to be putting away several hundred pounds a month. Not easy if you’re paying rent. Small wonder that half of the 25.5 million workers in the UK risk not having an adequate income in old age. According to a recent report by the Pensions and Lifetime Savings Association, 13.6 million people, 53% of the workforce, are likely to miss the target of 67% of what they earned prior to retirement; a benchmark known as the 'target replacement rate'. And, my fellow Australians, you’re not much better off: Recent changes to Australia's superannuation, low interest rates, and pension regulation has led to Australians deferring retirement for three years. Likewise Singapore will be legally obliged to offer re-employment to eligible Singaporean workers up to the age of 67, two years higher than the current age ceiling.
So we’re approaching an uneasy middle-ground between working in old age (assuming we can) and destitution, which, unless that’s a Brisbane nightclub, doesn’t sound like fun. Yet technological solutions do exist to give an intuitive measure of your pension requirements.
Mark Pritchard says:
“Unlike buying a car, house or antiques, the trouble with long-term savings and investments is that they are intangible; you can’t see or touch equity in a company, however technology can help increase the desire for everyone to save for the future by making the need more personal.
"Analysing what one spends today and extrapolating it into a financial forecast provides the best understanding of what one might need in the future, however rationalising a snapshot of an ad-hoc bank or credit card statement is not enough. To fully appreciate where your money goes, you need to aggregate your complete monthly spending over a period of time.”
Based on eWise account aggregation technology and Money Manager white-label app, Black Swan's assethub can provide a picture of your monthly spending over a period of time, consolidate and display all of your online bank accounts, savings, investments and pension funds in one place from a single sign in and produce a projection of your financial freedom point.
Other platforms include the pension modelling app called LiFT which enables employers to communicate to disparate workforces to help them identify their pension payments and savings goals, and Moneybox which rounds-up spare change from everyday spending into an ISA.
For these technological solutions the right data aggregation technology must be available. And we must use the technology properly. While millennials may be tech-experts by the time they retire, the worry is not so much for the older generations, many of whom are ‘silver surfers’ or already have decent pension pots, but Generation X, born between the late 60s and early 80s, who can still recall a world without Facebook and Groupon, and for whom using technology to cut a deal may not be second nature. The onus therefore is on creating software with simple User Interface (UI) and User Experience (UX) supported by customer service able to guide a range of age groups and individual needs.
Many of us would rather put pension planning off, particularly when we’re not sure how much money we’ll have when we retire; yet the best software supported by the best account aggregation technology will inform the best retirement decisions for our circumstances. Ernest Hemingway said "retirement" was the ugliest word in the English language. I prefer to use the word "management", and the technology exists to help us manage.