Horizon scanning – A connected society

In the third instalment of our new blog series, Richard Butcher delves into how big data and communication technology has influenced how we connect as a society.

Questions for trustees/IGCs to ask:

  • Are we using all the data available to us to design to the best effect? Could we improve scheme design and or our member interventions?
  • Are we open minded enough to move from analogue to truly digital age comms?
  • Are our anti-scam processes state of the art and will they continue to be?

 

In my blog Up periscope – looking to the horizon I explained why it’s important to look ahead to anticipate what may be coming and try to work out its impact. If we can work out the impact, we can pre-plan how to create opportunity or to mitigate risk.

There are three horizons to look to. The near horizon, which is stuff we’re aware of and understand for the most part; the far horizon, which is stuff we’re aware of but don’t yet fully understand; and over the horizon, which is stuff we’re not aware of but still need to be prepared for.

This blog considers a far horizon item – the impact of our increasingly connected society.

Tech is a funny thing. We look into the future and imagine flying cars, but the reality is that advancement is often incremental and unnoticed. It’s only when we ponder the passing of time that we realise the huge strides we’ve taken. We all live with mobile phones and think of them as completely normal. So, it is genuinely strange for me to think back and realise that, within my adult life, there was a time when I only saw them on telly.

Some numbers to show these huge strides

The internet: less than ½% of the world had access in 1990. That had increased to more than 50% in 2019. In the UK over the same time, access has risen from less than 1% to more than 93% (down from a high of 95% a couple of years before – I assume an effect of austerity). (1)

Mobile phones: in 2019 in the UK there were 117 mobile phone subscriptions per 100 people (confession: I have two) and smartphones had 83% penetration of the market. (2)

But that was the past. Now a flying-car moment.

Data usage in the UK in 2020 was 3.95 GB per phone per month. According to Giffgaff (admittedly a mobile network provider) this will increase to 98.34 GB per phone per month by 2025. A 2500% increase! In just five years!

I mention these numbers to show the truth behind the cliché: we are a more connected society. But so what? How does this impact the pension ecosystem?

The nature of the far horizon is that we don’t entirely know the answer to that question, but let me set out a few thoughts.

Data and decision making

At the risk of starting on a downer, let me say this upfront and get it out of the way. I know there are GDPR issues here. But GDPR shouldn’t be an unscalable wall in front of progress. GDPR is a challenge to be dealt with in the context of a drive to better member outcomes.

Greater connectivity means more data. More data means we should be able to make better decisions (that’s why Facebook gathers data on you – they want to make better decisions about how to sell you stuff).

That data can give us far more insight on member behaviours both within and without the pension schemes we run. We’ll be able to answer questions like “What is the typical spending pattern of a 64-year-old woman living in East Anglia?” or “Why does the volume of drawdown or transfer activity increase when it rains?” (I made that up, but wouldn’t it be fascinating to know if it’s true). This will allow us to design better interventions to protect the member or to help them improve their situation.

But the data can also act as source material for better decisions by fiduciaries and providers. Not just the sheer volume of data (and believe me we’ll be able to crunch this stuff with barely any effort) but also its granularity. We know values and histories, but without much trouble we could also know about health, wealth, personal spending patterns and so much more. Not just “What’s the average life expectancy of a UK male?” but “What’s the life expectancy of this particular member?” This will produce decisions that are more relevant. More accurate.

And finally, we can use data to drive more personalisation. The PPI raised this tantalising idea in the 2019 DC Future Book: “A move away from linear derisking to a more tailored approach ... may help some future pensions achieve a better member outcome …”. Make it more relevant and it is instantly more engaging and more accurate.

Communicating with members

Connectivity creates so much more opportunity to communicate with our members but, to be honest, I don’t think we’re the best people to think about this. We are, at heart, an analogue industry. We think in an analogue way. At best most of the comms we currently produce electronically are analogue comms converted into pixels. The whole saga of the simplified annual benefit statement for example – worthy though the cause is – illustrates my point. We are still thinking about “annual benefit statements” where we should be thinking push notifications, instant messaging, and dynamic data sets.

Connectivity gives us the opportunity to communicate digitally by design. Not analogue comms delivered digitally, but digital comms delivered digitally.

So, there are opportunities but there are also threats. Connectivity means members can more instantly and publicly disagree with us: “Why are you invested in that stock?”. This need not be a bad thing, but we do need to be geared up for it.

It also increases cyber risk (for example, it’ll be easier to clone or impersonate members) and scam risk.

Summary table

The impact of a more connected society

Short term

Creeping sophistication of comms. Starting to use data to improve decisions and scheme design (“smart” contributions and communications, progressive defaults, drawdown warning framework).

Medium-term

“Organic” comms start to emerge. Big data widely used to improve decisions and scheme design.

Longer-term

Tactical organic comms are the way forward. Big data use is common.

Risks

Scheme reputational risk, cyber and scamming risks.

 

Footnotes

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