Know Your Member - what is it?

Anish Rav, 21 March 2016

Improving Member Outcomes has become a key focus for all involved in pensions, but it needs a radical approach to achieve this.

The fundamental principles

Most of us are very familiar with the concept of ‘Know Your Client’. This is a principle that has been enshrined for a number of years and states that in order to give good advice, it is necessary to know (among other things) the objectives, circumstances, risk appetite and knowledge of an individual. This assists greatly in achieving a better outcome.

It is also true that when estab­lishing a successful product or service, there are a number of steps to go through including:

  • Understanding what the target market is and how they want to be communicated to
  • What features are required/ important
  • Testing the concept
  • Marketing
  • Reviewing and refining

When it comes to pension schemes (and staff benefits as a whole), historically, these principles have been largely ignored and it has been a case of ‘doctor knows best’; here is the prescription (without examina­tion), take this and hopefully it will work, but we won’t worry about the side effects or monitor you! This approach does not improve member outcomes and too often the real ‘voice of the member’ is not heard.

Know your member - the new approach

If we start applying the funda­mental principles highlighted above to schemes then arguably this must lead to better outcomes – something I have called Know Your Member (KYM).

With the rapid advances in technology we are now better equipped than ever to utilise KYM, driving better outcomes, building on the underlying prin­ciple that all fiduciaries need to ‘deliver the right information to the right person (trustee, sponsor, member) at the right time to allow effective deci­sion making and improving a stated outcome’.

We are now a data rich society and when this is combined with publicly available research, it allows powerful analysis upon which critical decisions can be made.

Clearly KYM can never replace having the individual knowledge of each member, but as that is not practical, it really is the next best thing; it allows fiduciaries to meet a key objec­tive of understanding their membership, driving the deci­sion making process.

At Capita Employee Benefits, we have developed a suite of tools that, when combined, are a powerful weapon to assist in achieving KYM, bringing together the knowledge of pension team with the in-house data analytics team. The suite of tools include (but is not limited to) the following:

Membership Segmentation

The Membership Analysis Tool helps to really understand the flexibility and type of member­ship a particular scheme has – this helps inform and drive engagement, governance and investment strategy, resulting in a more member-centric solu­tion that leads to improvement in outcomes. Members are seg­mented into three categories in terms of retirement saving: Passive Savers (those unwill­ing and/or unable to engage), Limited Personalisers (those willing and able to personal­ise saving, albeit only in a lim­ited way) and Independent Choicemakers (those willing to engage fully).

Target outcome planning

TOP assesses member outcomes by considering what they will look like for members. While the analysis is complex, the pres­entation is simple – putting a member’s projected retirement income into a combination of one or more of three ‘buckets’; Basic Survival, Home Comforts and Life’s Little Luxuries. Fiduciaries can use this informa­tion to monitor trends, and focus on key areas and improvements and take corrective action where necessary. This is done from an informed position, using the analysis to make critical deci­sions, driving a clear improve­ment in outcomes by knowing the member and challenging what outcome they are respon­sible for.

know your member

The buckets concept drives through to communication and aids the member in under­standing what the pension scheme will provide and the impact of saving more, allowing them to plan for the future with confidence. The following graphic helps to show how increasing contributions can help grow pension savings, to achieve the desired retirement.

The future

If we really want to improve member outcomes, then Know Your Member has to become the mantra for 2016 and beyond. This can only be achieved by fundamentally rethinking the whole approach to pension schemes, from design to commu­nication. We must consider the voice of the member and apply some fundamental product design principles, combining this with the powerful data and modelling tools that are avail­able. I firmly believe those who embrace KYM will see a substantial improvement in outcomes. Let’s embrace Know Your Member! 

About the author

Anish Rav Head of DC Proposition & Strategy

Anish Rav

Insight Research

Our research reports are aimed at Pension Trustees and HR Directors, covering topics such as pensions, health, flexible benefits, engagement and wellness. They are free to download!

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