Trust is lacking for financial institutions such as banks, money managers, and insurance companies. This has caused a lack of adoption for financial products and services that helps individuals manage their finances. This is especially acute in the annuity space. However, annuities have a very important role in one's financial wellness, especially in later stages in life, and in particular in helping manage longevity risk.
In the past generations, people have had workplace pensions (defined benefit plans). However, with the closure of many defined benefit plans, defined contribution plans (401k/403b plans) emerged. There are many great benefits to a defined contribution plan, however, it does leave a whole series of financial decisions to the individual, who often times may not have the time, knowledge or interest to manage their finances. Furthermore, defined contribution plans currently covers less than 50% of the workforce, creating a further need for a retirement plan outside of the workplace.
Why a credit union?
Creating a personal pension product and distributing it via credit unions have the following appeal:
1) On a retail basis, the trust one has for a credit union seems to be greater than other financial service providers. As such, I believe credit unions are in a unique place to create this social impact, especially in light of its non-profit business model.
2) In light of longer lives, we are moving from a work life of retiring at 65 to one that transitions into different phases of one's life. As such, we are also changing jobs more frequently, and having a financial institution that is outside of the workplace to hold one's pension makes a lot of sense.
3) If credit unions can become of union for people, and create communities, I believe this can be a better venue to house one's pension than a tradition financial institution.
How might a credit union create such a product?
A credit union can create such a product by combining a selection of investment and annuity products to create the desired pension characteristics. This can be completed by the credit union or by hiring an investment manager, institutional investment consultant, or an insurance firm. There will likely be a need for middleware provider to administer the recordkeeping aspects of the solution. (I will leave out the technical details of implementation, but can certainly elaborate further on how this might work.)
The distribution of the product should be framed as a pension for individuals when they first open an account at the credit union. Contributions to it can be a transfer from workplace savings plans, or perhaps even in addition to that contribution, an automatic deposit monthly.