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TCS BFSI Platform: Transforming Financial Services for Better CX
Highlights
- Pensions markets globally are changing dramatically, due to several social and economic factors.
- This is most evident in the UK pensions market, which is undergoing a significant transformation driven by demographic changes, economic environment, regulatory reforms, and technological advances.
- As the landscape evolves, pension providers have opportunities to offer innovative solutions, particularly in terms of digital and AI-driven services.
- The evolution of the UK pensions market will depend on the identification of key challenges, market gaps, market leaders, and strategic actions for providers. Pension providers must leverage the lessons learnt across geographies to stay ahead.
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Introduction
The pensions business is at an inflection point in global markets.
A potent combination of demographic and societal changes, economic uncertainty, and regulatory pressures are presenting pension providers with significant challenges, along with many new growth opportunities. Organizations that can channel digital capabilities for agility, performance speed, and better customer insights will prevail in this shifting landscape.
The pervasiveness of technology has reshaped expectations: digitally-savvy consumers demand more personalized, mobile-first pension solutions that integrate wider financial planning.
The UK pensions market exemplifies both the pressure on providers, as well as the significant benefits for organizations that commit to investing in frictionless and more personalized customer experiences, more forward-looking risk management.
Challenges
The UK pension organizations are confronted by numerous macroeconomic challenges.
For example, many individuals lack awareness and understanding of pensions. A 2023 study by the UK pension organization People’s Partnership reported that 32% of UK workers did not know how much they had saved for retirement. A recent report by NEST Insights reviewing pension savings pointed to acute financial pressures for many households, not just because of recent cost-of-living pressures, but also the level of debt in the household; the absence of any liquid savings to protect from financial uncertainties; and, the likelihood of falling behind on bills or rent.
Based on TCS’ experience of pension administration for Standard Life, this trend can be seen in pension contributions across all age segments. For instance, the industry suggests that pension contributions for people between 18-29, should be £369pm yet average contributions for that age group is £232pm. ONS adds that an increasing number of workers change jobs frequently, leading to fragmented pension pots that are difficult to consolidate.
At the same time, the pervasiveness of technology has reshaped expectations: digitally-savvy consumers demand more personalized, mobile-first pension solutions that integrate with wider financial planning.
Meanwhile, a recent report from the UK Treasury on pension fund investment strategies highlighted a shift towards lower-risk assets, reducing potential returns and limiting pension growth.
External forces
There are various external forces shaping the UK pensions market and influencing its direction over the next few years.
Political context
According to the Department for Work and Pensions, between 2009-2023, the UK government’s continued commitment to auto-enrolment increased pension participation to 88% among eligible employees. However, debates around pension fund investment in UK infrastructure raise concerns about balancing returns with economic growth.
Economic forces
Inflation has eroded real pension values. The Pensions and Lifetime Savings Association reported that the average defined contribution pot shrunk by 10% in real terms over the past three years between 2020-23. Wage stagnation and cost of living pressures make consistent contributions challenging.
Societal change
The shift towards later-life employment means many people will work beyond traditional retirement ages. Rising life expectancy in the UK - now at 82 years on average - requires more sustainable pension drawdowns. Further, environmental, social, and governance (ESG) investment demand is rising, with 68% of UK pension savers wanting more sustainable investment options, according to advocacy group ShareAction. Providers are under pressure to ensure pension funds align with ethical and sustainable objectives.
Technological advancement
AI, blockchain, and open banking are transforming pension administration, improving efficiency and customer engagement. Robo-advisory platforms are expected to grow by 20% annually in the next three years, according to research firm Statista.
Legal and regulatory changes
The UK government continues to prioritize and require transparent and equitable administration of pension schemes while also looking for ways pension plans can help grow the economy. For example, the Pension Schemes Act 2021 introduced stricter governance and climate-related disclosure requirements, increasing compliance complexity for providers. This year, the government has proposed the Pension Scheme Bill, which would allow surplus withdrawals from defined benefit (DB) pension schemes in order to spur economic growth – amid regional and global economic uncertainty.
Integrated solutions
Customers are increasingly seeking holistic wealth management solutions that encompass more than traditional pension-related decisions.
This shift reflects a desire to integrate comprehensive financial strategies into retirement and lifestyle planning.
- Holistic financial planning: Modern retirees are moving beyond singular pension products, opting for integrated wealth management approaches that address diverse financial needs, including investments, tax planning, and estate management. This trend is driven by the recognition that a multifaceted strategy can better accommodate the complexities of retirement.
- Personalized advice and digital engagement: There is a growing demand for tailored financial advice that aligns with individual goals and risk tolerance. Customers are also seeking digital platforms that offer seamless access to financial information and advisory services, enabling informed decision-making.
- Intergenerational wealth transfer: Retirees increasingly are considering the implications of their financial decisions on future generations, incorporating strategies for intergenerational wealth transfer into their retirement planning.
The convergence of wealth management and retirement planning is becoming more pronounced, with financial institutions adapting to this paradigm shift with a multi-pronged strategy:
Comprehensive service offerings: Firms are expanding their services to include a range of financial products and advisory solutions that cater to the holistic needs of retirees. This includes investment management, tax optimization, and estate planning, to provide a one-stop solution for clients.
Technological advancements: The adoption of AI and automation is enhancing the efficiency and personalization of wealth management services, making them more accessible and tailored to individual client needs.
Evolving expectations
The wealth management sector is undergoing a transformation focused on customer-centric innovation, ensuring that services evolve in line with client expectations and technological advancements.
Customers increasingly favoura wealth management approach to retirement planning, seeking comprehensive, personalized, and digitally accessible financial solutions that align with their lifestyle and legacy aspirations.
The takeaway for pension providers is that customers increasingly favor a wealth management approach to retirement planning, seeking comprehensive, personalized, and digitally accessible financial solutions that align with their lifestyle and legacy aspirations. Let’s look at how this might play out in approaches to five different types of customers:
Challenges:
- Low engagement with pension savings due to financial pressures—43% of young workers prioritize paying off debt and savings through more flexible products over pension contributions, according to financial services provider Aviva.
- A limited understanding of pension benefits, with 55% of under-30s unaware of employer contributions, as reported Hargreaves Lansdown, a UK-based platform for private investors.
- The gig economy’s rise has led to 28% of young workers having no workplace pension, reports the think tank Resolution Foundation.
- The standard pension pot size calculated based on average annual spending for this segment (by 30 years of age) is £11.7k, yet our internal studies suggest the average actual size is £8k.
Opportunities and areas for improvement:
- Financial education and engagement: Interactive financial literacy programs through social media and gamification. TCS’ experience of administering a number of pensions schemes shows that digital nudges to this customer group improves engagement levels and financial awareness.
- Flexible contribution models: Enabling varied contributions that support gig workers, and career changers.
- Mobile-first pension management: AI-driven apps offering real-time tracking and planning can significantly uplift engagement levels. One of our clients now has over 70% of mobile-first customer logins .
Challenges:
- Financial pressures from mortgages and childcare mean that 39% contribute less than the recommended 12% of salary, according to insurer Legal & General. Recent feedback from TCS customers has shown that the biggest priority for over a third of them in the next 12 months, is managing household finances.
- Fragmented pension pots from job changes lead to inefficiencies—insurer Aegon reports that 47% of mid-career workers have at least three separate pension pots.
Opportunities and areas of improvement:
- Automated pension consolidation: AI-driven tools to unify multiple pensions.
- Hybrid financial advice models: Accessible digital advisors combined with human support.
- Holistic wealth management integration: One platform combining savings, investments, health, insurance, and pensions.
Challenges:
- Uncertainty around how much is needed for retirement— the Financial Conduct Authority (FCA) says that 60% of people in this group feel unprepared.
- Tax complexity leads to inefficient pension drawdowns, costing retirees significant sums.
- The standard pension pot size calculated based on average annual spending for this segment (by 60 years of age) should be £110.5k, yet our internal studies suggest the actual average size is £55.3k.
Opportunities and areas of improvement:
- AI-powered retirement planning: Tools for scenario modelling and optimization. Our research shows that logins to mobile apps grew significantly for this age group with customers actively looking for tools to help them to plan for their retirement.
- Integrated retirement platforms: Pension solutions incorporating savings, healthcare, investments, pensions, and insurance.
- Tax efficiency optimization: Digital tax planning tools for pension withdrawals.
Later years
The challenges faced by retirees change over time.
Early retirement (61-67 years old)
Challenges:
- Difficulty balancing pension withdrawals with long-term financial security.
- Healthcare and care costs are rising, with the average retiree expected to spend £50,000 on care, notes charitable organization Age UK.
- Unplanned retirements where individuals are forced to transition to part-time work rather than being able to retire when they wish.
- The pension pot size suggested by the industry for this segment (by 67 years of age) should be £114.6k, yet our internal studies suggest the actual average size is £53.3k
Opportunities and areas for improvement:
- AI-driven withdrawal strategies: Data-driven spending recommendations.
- Healthcare-linked pension products: Integrated medical and long-term care planning.
- ESG-focused investment portfolios: Sustainable pension investment choices.
Late retirement (68+ years old)
Challenges:
- Longevity risk—pensions must last longer, with a growing number of retirees living past 90. The ONS says a 66-year-old woman has an average life expectancy of 88 years, but also has a one-in-four chance of living to 90, and a one-in-10 chance of living until 98.
- Financial fraud risk, including pension scam losses reaching £1.2bn annually, as reported by crime and fraud reporting center Action Fraud in 2023.
Opportunities and areas for improvement:
- Smart pension management: AI-powered alerts for spending and financial security.
- Fraud prevention and authentication: Biometric verification and blockchain security.
- Annuity and income protection innovations: Guaranteed lifetime income with flexible access.
Personalization
The throughline for pension companies to successfully support all these life stages is technology-enabled flexibility, forecasting, and the ability to securely personalize for distinct member/customer needs.
This includes capabilities such as:
- Flexible contribution and withdrawal models: Adapting to income patterns and financial needs.
- Integrated digital financial planning: Comprehensive platforms combining savings, investments, pensions, insurance, and healthcare.
- AI-driven personalization: Customizing strategies based on real-time data.
- Sustainable and ethical investment options: Expanding ESG pension choices.
- Advanced security and fraud protection: Implementing biometric authentication and AI-driven fraud prevention.
This is not an imagined future. Already, the life insurance, pensions, and long-term savings industry is witnessing significant innovation across companies of various sizes globally. Organizations such as technology provider True Potential and large institutions such as Standard Life, Nest and Aegon are leveraging technology and novel approaches to enhance customer engagement, streamline operations, and offer tailored financial solutions.
One of the UK's largest pensions providers, Nest, born out of auto- enrolment, has already made a significant impact by bringing over 12 million savers into long-term savings. Their unique approach to managing a single, manageable online pension plan provides savers the ability to see their savings in an integrated manner, across multiple employers and as they transition through jobs. This service addresses the common issue of fragmented savings due to frequent job changes, providing users with a clear overview of their retirement funds and facilitating better financial planning.
Another UK-based life assurance and pensions company, Standard Life, through its comprehensive approach towards helping customers save for future, is using open banking architecture to provide a single view of customer savings and helping them not only plan for the future, but also supporting them along the way to be resilient today.
Conclusion
To ensure a thriving UK pensions sector in five years’ time, providers must take five signature actions.
- Accelerate digital transformation with AI-powered, real-time pension platforms.
- Enhance financial education through digital and hybrid advisory models.
- Create flexible pension products and offer wealth management-type services by adapting to modern work patterns, life, regulatory, and governmental taxation complexity.
- Drive ESG integration through transparent, sustainable investment options.
- Strengthen security through blockchain, biometrics, and AI-driven fraud prevention.
These essential strategies will be differentiating and winning initiatives, not just in the UK but in any market where people need to make better-informed and easier-to-enact decisions about their financial futures, as customers worldwide seek trusted partners to guide them on this journey.
