At the end of 2021 I attended the annual Pensioen Pro event, where this year’s theme was ‘towards a new system’. There were lots of conversations around innovation and regulation. For a long time in the retirement sector, regulation has come ahead of innovation when it comes to solving problems. If this trend continues, we may be saying RIP to the longstanding custodians of the industry.
In recent history, regulation has become foundational for change across the retirement industry. Its primary function is to ensure that companies operate within the lines of decency and competitiveness, meeting rules or directives made and maintained by an authority. However, the industry is increasingly experiencing innovation paralysis as a direct result of regulation, due to the fear of landing on the wrong side of a line which is yet to be drawn or moved.
Whilst regulation and policy are supposed to be tools of guidance and comfort, they are now regularly being used as a mechanism for change. In the last two years alone, we’ve had the Retirement Income Covenant in Australia, the SECURE Act in the US and the Pensioenakkoord in the Netherlands.
Each of these regulatory frameworks is being implemented to stimulate innovation and (ultimately) positive outcomes for savers and spenders in retirement – but why are we waiting to be told how to innovate?
Typically, zero to one type innovation doesn’t rely on regulatory change and often comes from outside industry. The change happens through a deep understanding of the problem to be solved and launch of a product or service that solves it, with regulation then making sure that it operates in the best interests of those it serves.
Outside the retirement industry, well known examples of this are Tesla – Elon Musk wasn’t building electric cars before Tesla – Google and Netflix. Each of these companies have revolutionised their industries, and now regulation is being shaped to support them scaling safely and ensuring that they act in the best interests of those they serve.
In the retirement industry, there are two fundamental problems that we’re trying to solve – (1) spending in a sustainable way, and (2) saving enough for retirement. Yet there’s a lack of innovation or determination to solve these problems without first being told how to do so. Providers need to flip the current processes on their head if they want to avoid falling too far behind the breakaway group.
Whilst this is a relatively straightforward and obvious point, identifying the true problem is usually a lot more complicated. Gaining a deep understanding of your customer will give you the best opportunity to identify the problem. At Smart, our UX research teams are charged with running experiments and validating our hypotheses to make sure that we’re focusing our efforts on the right problems.
Given the cost and scalability of technology today, the opportunity to test and validate innovation is more affordable than ever, if you know how best to utilise it. Innovation comes from maximising the value that you give to your customers and it’s rarely (if ever) a straight line between creating an idea and value. Testing and iterating are important to ensure that your ‘innovation’ is relevant.
Whilst product innovation is continuous – it has to be, to stay relevant to an evolving problem – regulation helps to make sure that the train stays on the tracks. It’s not there to lay the tracks to the destination. Instead, it’s there to make sure that once the train is on the track, it gets to exactly where it’s supposed to be going.
Regulation is necessary but shouldn’t be the sole catalyst for change, unless it’s removing a historic blocker to innovation. At a time where technology enables the delivery of innovation cheaply and quickly, we have a duty to ensure that we utilise that ability to provide our customers with solutions that meet their needs. Through a deep understanding of customers, businesses can work with regulators to communicate a vision and make sure that there’s alignment in a shared goal, rather than waiting for permission to help people.
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Smart is a global savings and investments technology platform provider. Co-founded in 2014 by Andrew Evans, Group CEO, and Will Wynne, Group MD, it is one of the UK's largest providers of workplace pensions. Its award-winning master trust, Smart Pension, is overseen by independent professional trustees.
In 2020 Smart Pension was named Master Trust Offering of the Year at the Pension Age Awards. Other awards include DC Master Trust of the Year, DC Innovation of the Year and Retirement Innovation of the Year in the 2019 UK Pensions Awards. Smart Pension was also named European Pension Fund of the Year 2019 in the European Pension Awards.
Legal & General Investment Management (LGIM), J.P. Morgan, Link Group, Natixis Investment Managers, Barclays, Chrysalis Investments and DWS Group are all investors in Smart.
We tweet as @SmartPensionUK.
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