In 1875, the American Express Company established the first pension plan in the United States. Back then, life expectancy was 49 years; although people who lived to see retirement continued working well beyond 65. In fact, if a male over 65 years old was not working, it was likely due to a disability, which was not something you could insure against at that stage.
Fast forward 140 years, and you’ll find that what has changed most about the retirement industry is the way it is regulated.
Same look
Products remain fundamentally the same; members frequently contribute a small premium to a fund that slowly grows over the course of their lifetime, so they need not spend their golden years breaking their backs but instead enjoy the peace and medical care they have worked so hard for.
Today, however, people live longer, their financial needs are more varied, and the things they want to do when they retire have changed.
Disappointing sluggishness
While a retirement annuity is certainly one of the human race’s most prolific innovations over the last century-and-a-half, it is disappointing to see how little the industry itself has changed. Gone are the days of the horse and buggy; but in many ways, the approach to retirement feels like something out of the Wild West.
As an industry, we are becoming increasingly aware that we have to innovate when it comes to product creation, but we need to be more nimble and move faster when it comes to building products that meet our customers’ ever-changing needs.
Admittedly, there are several financial products that appear to offer innovative opportunities for people to diversify, hedge, and insure their old-age economic security; but these seem to be the exception and not the rule.
Nothing more than a romantic fantasy
The industry faces another problem. A recent South African retirement study has revealed that 84% of respondents dismissed a comfortable retirement as nothing more than a romantic fantasy.
This begs the question: have we done our best to encourage a savings culture towards our customers’ golden years?
More than that, have we been innovative in the creation of new, affordable and accessible products or solutions to offer our customers more choice?
We can no longer rely on generic solutions, or approaches to communicate the importance of planning for retirement any longer.
Lean towards simplicity
According to a recent Harvard Business Review, the one thing that engages consumers in adopting a brand or product is the simplicity in the decision-making process.
If the industry wants to increase adoption of retirement products, we have to create products that are easy to find, easy to understand, easy to evaluate, and easy to buy. We have to turn money into meaning. In other words, not just share a balance statement on the value of their savings, but rather an answer to the questions surrounding it.
By way of example, 2012 saw the launch of a suite of investment products (including a retirement annuity product) that does not cost the customer any upfront costs if it does not yield at least a specified annual return. In 2015, the same company launched another product which offers an Exact Income Fund, an investment portfolio that guarantees income in retirement, regardless of market fluctuations.
Influencing the future
The challenge our industry faces is not only to ensure that today’s generation has its ducks in a row ahead of retirement, but rather to influence the next generation; a generation to whom you cannot sell, unless they buy in. This means the wholesale change of generic retirement packages, and how we communicate about these products.
If we do not want to claim for our own retirement prematurely, we need to come up with new solutions and approaches that resonate with our customers.