The pensions industry is one of the worst at understanding its customers, which is one reason why two providers have developed innovative online tools, writes Nina Röhrbein

In the pensions world, the word innovation arises in connection with the latest trends in investment and products. Other areas – such as IT – tend to be overlooked.

However, the second largest commercial provider in Scandinavia – Danica Pension – is now dedicating resources to the online world, in a game-changing move.

Danica Pension CEO Per Klitgård calls it one of the biggest investments in the history of the pension provider. With the help of actuaries, finance experts and anthropologists, it has created a digital financial planner, that aims to address the individual circumstances of its members.

The so-called Danica Pensionstjek (pensions check) asks the individual six simple questions about their life situation – whether they have a new job, received a salary increase, have a mortgage, got married, divorced or had children, as well as about external savings and insurance policies. They then receive a recommendation on what to do next. This is an annual undertaking.

A red, amber or green light indicates whether the individual follows Danica Pension’s recommendations. Red shows the saver has considerably less than the recommended savings or insurance cover. Amber indicates a better savings and insurance level yet still not sufficient.

A slide bar allows the saver to visualise the effect of changes – such as an increase in contributions or a delay to expected retirement.

After looking at the options, savers can decide whether they want to be contacted. Danica Pension then contacts savers whose Pensionstjek is red within two to three days. The process was piloted with IBM employees.

Danica Pension notes that out of 100 employees targeted, 60 underwent the pensions check. Of those, 39 had a red signal because their savings were too low. Following the exercise, half of those with a red signal adjusted their premiums or insurance cover.

“If we apply it to our 600,000 customers, the model tells us that one third of them need to look at their pension cover because their life situation has changed,” says Klitgård. “We did not know that until we ran the pilot programme. It is important to build online or virtual counselling into our operating model – because we simply cannot have an actual meeting with 200,000 people.” The CEO is convinced Danica is in a good position to capture the remaining 40% soon.

ReD Associates, which advised on the system, thinks the pension industry is based on three incorrect assumptions – that customers are fully informed about their savings, that they are rational about their decisions and that they know what they want.

Klitgård says: “The pension industry has probably been one of the worst when it comes to understanding its customers. For us, this allows us to understand the customer’s needs and give recommendations.”

He is keen to defend against accusations that Danica is seeking higher contributions. But the motivator behind the Pensionstjek was not internal – Danica reacted to a tender by AP Møller-Maersk, which required the winning pensions provider to set up an online platform to monitor member’s needs and advise.

Danica rolled out its Pensionstjek on 1 February 2013 – initially as a three-month pilot – with the employees of IBM, Arovit Petfood and Blue Water Shipping. It will add an English language version soon and scale it up with AP Møller-Maersk and other corporate pension schemes in the first quarter of 2014. It eventually aims to expand this to its private customers. It will also develop a similar model for the care system.

Klitgård notes that Danica Pension’s parent, Danske Bank, has concluded the overall satisfaction levels with online meetings are the same as with physical meetings, at 90%. Loyalty to the pension provider is ranked even more highly in online meetings at 84% than it is with physical meetings, where it registers 78%.

“The loyalty factor is particularly important as until now we were only talking to new customers and then left them to their own devices,” says Klitgård. “As a result, they would move to another pension provider. This is not a good operating model because while we may have been selling a lot of new pension contracts, we have not been dealing with our responsibilities.”

Klitgård says that the majority of Danica’s customers have no idea about investment strategy, which is why the company should remain responsible for asset allocation decisions.

“A decade ago, Danes were able to choose between a number of investment products for their pension savings and they did not like that,” he says. “They want us to take responsibility for the concrete investments, leaving them only able to choose whether they want a low, medium or high level of risk.”

Klitgård likens the arrival of the financial planner to other digital advances. “A decade ago less than 40% of Danes were using internet banking – today this has doubled,” he says. From 2015, he expects, only 20% of advice will be delivered via face-to-face meetings, down from 100% today.

Danica is not the only pension service provider to take part in the online revolution.

The UK’s Ensign Pensions Administration, a third-party provider that was spun off the Merchant Navy Officers Pension Fund (MNOPF) and which now provides pension administration to 43 other pension schemes, has joined in.

“We are looking to be the administration partner of choice for de-risking DB schemes in the UK,” says Sue Applegarth, chairman of Ensign. “We want to provide support for their strategic input and therefore needed to develop the necessary tools to support them.”

Ensign aims to protect the reputation of the employer in closing DB schemes. It also expects to manage trustee risk on ongoing liabilities, undertake member engagement and help out with potential buy-ins and buyouts.

Closed DB schemes are less attractive to employees as a retention tool, believes Applegarth. Accordingly, Ensign has created Intouch, which provides video communications. This will be available as a standalone product from November 2013.

In addition to the Intouch Project, Ensign has also developed Touchpoint, which allows trustees and sponsors to support members during a de-risking process. “The tools simply allow an efficient administration when DB schemes move to full or partial buyouts and buy-ins.”