The general tightening of budgets as a result of current economic conditions means that being able to present an employer with evidence of the ability to take significant costs out of their business can expect to get the attention of any finance director. Each year my organisation carries out a detailed benchmarking exercise examining the quality of technology delivered by group pension providers.
In my experience generally we see group pension providers fall into one of three categories. Year after year insurers are making a massive ongoing investment in system advances to automate both the establishment and maintenance of group pension arrangements. Competition amongst those providers with the most sophisticated systems is intense, as each organisation strives to include additional facilities that will give them that extra edge. A small number of insurers have made significant oneoff investments to advance their systems into the leading group, but failed to follow through with ongoing investment and risk losing the competitive advantage they had gained.
Finally, other companies by comparison do very little. It never ceases to amaze me that some of the largest names in the group pensions market have some of the least sophisticated systems.
It is also worth mentioning that there are of course numerous firms that are closed to new business, and with one or two exceptions these have invariably failed to make any further systems investments, condemning advisers, employers and members alike to a level of service that should be totally unacceptable in the modern world. With the pressure all employers are experiencing to reduce costs, automating as much of the group pension scheme process as possible ought to be a no-brainer, yet billions of pounds still reside in inadequately serviced group arrangements.
One example worth considering is those fund management groups who briefly entered the group pensions market with the advent of stakeholder arrangements at the beginning of the decade. While a handful of fund management firms proved highly adept at delivering group pension solutions, many more failed to achieve critical mass. Many of these organisations however still operate a number of schemes. These should be a target for any employee benefits adviser.
There are a wide range of insurers who offer group arrangements with streamlined processes for scheme establishment, contribution payment, leavers and joiners and a host of other processes. So there is no need for employers to put up with anything less. Carrying out an audit of the extent of automation used by an employer’s existing arrangements ought to be an obvious way of identifying where employers could easily cut costs. Being able to liberate accounting and HR staff from cumbersome pension administration should be an ideal way of achieving such savings. Equally, in my recent experience, significant numbers of advisers are having to provide considerable additional support to employers, especially around contribution collection, leavers and joiners to make up for the shortcomings of pension providers technology. Given the current state of the economy, this simply does not make sense. Clearly now is a challenging time for any insurer that has not made the investment to automate group pension systems to gain approval for a business case likely to involve expenditure of many, if not tens of millions of pounds. But these insurers may be faced with a stark choice – invest in systems or by the end of the current recession you are likely to have no group pension business left to worry about.
In the individual market the consequences of RDR will necessitate massive investment in new systems. The removal of control over remuneration will mean that advisers will insist on providers delivering fully automated trading. It is important that the group market benefits from a similar level of investment. As adviser costs are put under greater than ever scrutiny they simply will not be prepared to subsidise providers with manual processes.
Presently the FTRC is developing a pilot with a small number of specialist group pension advisers to examine how the data we collate on providers’ group pension e-commerce propositions can be used to help identify and document where additional operational savings can be achieved for both the adviser and employer. Any firms interested in being involved with this work should contact me at firstname.lastname@example.org for more information.