Making auto-enrolment cost-effective for small employers will force genuine automation on the entire pensions industry, says Pensionsync creator Will Lovegrove. John Greenwood hears why.
Getting 1.8 million small employers to transfer data to pension providers on a monthly basis was never going to be straightforward. But unless the pension and payroll industry embraces digital processes, there simply will not be enough bodies to make it happen, according to Will Lovegrove, founder and CEO of Systemsync Solutions, the creator of automated data transfer system Pensionsync.
The problems inherent in the impending huge peaks of stagers will be felt not by pension providers but by the payroll industry, he argues – for, while the receipt of data is relatively straightforward, the pain will come from packaging data and giving it to providers on their terms.
But while auto-enrolment will initially drive automation for the payroll processes of small and micro employers, Lovegrove contends that this, in time, will push digital processes upstream to bigger schemes, which will not accept service of a lower quality than that enjoyed by smaller organisations.
“Once automation gets a toehold in the market, everyone will want it,” he says. “If the micros are automated but the large ones aren’t, people won’t accept that, so we are using the high number of
micros to move automation into the larger market. And then it’ll be there for wider employee benefits.”
Pensionsync does not replace middleware; nor does it do communications or assessment. It is essentially a way of transferring data from payroll bureaus to pension providers in an efficient way that minimises errors and reduces administration costs.
The company looks every inch a fin-tech start-up, from its small, informal offices in Parsons Green, west London, to its chief executive, who was a PhD intern with Adobe in California in the 1990s before stints with Ministry of Sound and Universal Music.
The opportunity to become part of the pension data transfer furniture stems from the massive workload coming down the track to payroll bureaus, says Lovegrove.
“Bureaus that have already started may have staged 20 firms but they have maybe 1,000 more to come. They realise they can’t survive as businesses if they have to do all of those,” he says.
The company is banking on the capacity issue becoming significant for payroll administrators. It calculates that, if payroll continues to use existing CSV-driven administration processes, an additional 5,000 to 7,500 payroll staff will need to be recruited before the end of 2017. That compares to less than 1,500 payroll staff vacancies across the UK currently. Its pitch to payroll bureaus is that a typical operator with 200-plus clients could save over £25,000 in staffing costs through the automation of AE data.
The company also regards employee benefit consultants as potential customers.
“Workplace data is at the core of our plan but our model has never been to charge the providers,” says Lovegrove. “We think the bigger value is in the user experience. That is something that working inside benefits will pay for.
“Inside Pensionsync, we have rebuilt copies of the data validation models of several providers. We will apply the data validation then, because we get a very quick response before it gets to the provider. This is good because these are organisations that historically take a while to get back to people. We think 80 to 90 per cent of common errors can be solved with this solution,” says Lovegrove.
Last month, Legal & General became the first provider to go live with the system, meaning it
can accept any employer about to stage and apply no employer charges provided the data comes through Pensionsync. To benefit from the automated L&G proposition, accountants, bureaus and book-keepers must complete the scheme set up on behalf of their clients. To facilitate this, Pensionsync has developed an innovative sign-up process that includes employer sign-up to L&G via smartphone.
The second live pension provider is The People’s Pension, which has formed a strategic partnership with Pensionsync to work with payroll software providers to streamline their already highly regarded administration processes.
Nest and Smart Pensions are currently being developed and integrations with Aviva and Now: Pensions are expected to be delivered in 2016.
“We aren’t trying to create markets within markets; we want to be a pan-industry data hub. And if we can achieve that, the question of moving data between payroll and providers can fall into the background and the debate can focus on what it should be around, which is investment strategy, AMCs and communications,” says Lovegrove.
“We are basically trying to stop lots of payroll bureaus up and down the country having to shuffle paper to get data to providers.”
Systemsync has two charging models for Pensionsync – one where it charges the technology provider to white-label its system, and a direct model where payroll software providers tell bureau customers that they should use the company to connect with pension providers.
“The difficulty for payroll generally is they don’t know how to upsell their businesses,” says Lovegrove. “They are supporting lots of uneconomic employers. But it feels like employers can’t go to just one person to get auto-enrolment sorted.
“To choose a scheme, they need to go to an IFA. But what if they can’t get one? Then, to deal with the payments, they need someone like their accountant, but what if they don’t want to do it?
“I think the problem is in the implementation and administration of the schemes. I don’t think software is the entire answer but the number-one problem is manual data inputting, which is sucking up time,” he says.
Aside from the commercial advantages his system brings, Lovegrove believes that widespread adoption will make for a better pension market overall.
“It democratises choice. So every provider that uses the system is on a level playing field, so it
can be chosen on the basis of the features it has – such as investment, communications and other important but subjective features – and not on how much of an admin headache it brings,” says Lovegrove.
The system has relied on much of the work done through the Friends of Auto-enrolment.
“PAPDIS has set out what it wanted to achieve. It is the DNA inside Pensionsync – we have added to it and evolved it.
“But we had to create another data standard for schemes,” says Lovegrove, who not surprisingly wants all providers to talk a similar language.
“PAPDIS has created an automation standard for payroll; we have created one that works for schemes. That means we can work with people easily and then the pensions world becomes
Interoperability is a buzzword that appeals to everyone – except those with a large pile of assets they want to hang on to.
So with so many vested interests in maintaining the status quo, does Lovegrove feel he is being held back?
“I get different feelings from different organisations,” he says.
“Some organisations see that the benefits of what we are doing far outweigh what they are paying out for managing smaller and smaller employers. So they have to invest in automation to reduce their costs and hit their targets.
“But I don’t get the same reaction when I speak to organisations that are not committed to taking a chunk of that automation market over the next two-and-a-half years.
“And at one extreme are the products where you can only buy a product through an IFA. It reminds me of the music industry years ago where, if you wanted a piece of music, you would go to a shop and someone who knew their music would help you select it, right through to today’s iTunes digital downloads.
“The providers I speak to that are for automation see it as democratising the process and helping them support and manage their call centres, and they are not going to hide behind high-friction, personalised sales channels that have dominated the industry so far,” he says.
But the industry has a way to go to catch up with other sectors, he argues.
“I can’t believe how hard the pensions industry has made it for their customers to interact with them. It does not exist in any other industry but it seems to be a survival strategy in this industry, where we see a reluctance to adopt standards, a reluctance to adopt cutting-edge technology, a reluctance to rework the way products are distributed.
“Digital technology is not the thing that is disrupting the market – it is the Government.
Fifteen years after the dot-com revolution, there are still things that cannot be achieved digitally,” he says.
“But if the current trend and our momentum continue with the ubiquity of data transfers through digital channels then those organisations that are not on board will stand out and be difficult to work with. And that will lead to differential pricing being implemented by organisations to pay for costs they cannot control,” says Lovegrove.
While data transfer for SMEs may be the first goal, data flows across the entire pensions landscape are the bigger prize. If and when that finally happens, it will be transformational for the market, he says.
“We are interested in pensions dashboard and pot follows member because it is the other side of
“Auto-enrolment is about getting money and data into pension schemes and right there the other side is getting data out to power dashboards or getting money out to access pension freedoms.
“Whether it’s a wealth management company or EBC or however the pensions dashboard is managed in the future – we would be able to provide an aggregated view of everyone’s pots.
“And there is a relationship between the visibility of data and control. If you can see all your pots, you can control them. The job of transferring pots around diminishes if you have visibility,” he says.
Today’s pensions industry moves data and assets at a glacial pace when compared with other sectors, preserving the status quo and arguably hurting the pensions brand in the process. True interoperability will bring more than just faster processes.