E-commerce has long been a crucial issue in the selection of group pension providers but as the deadline for personal accounts looms, it is clear that providers either need to get this issue right or simply decide not to play. Although the Government will no doubt promise a slick, easy-to-use process, the track record of public sector IT projects hardly bodes well.
Conversely, if an employer is to be persuaded not to simply dumb down their own scheme and to offer only mandatory contributions in the new environment, it is essential that any scheme offering higher contribution levels be simplicity itself to operate.
When talking to advisers, it became very clear that a significant gulf is emerging between those life offices that have invested heavily to deliver user-friendly, easy to operate processes for both scheme establishment and ongoing contributions and a significant number of providers who are still expecting employers to make do with last century’s technology.
One common complaint was that some providers offer all the bells and whistles to new schemes while failing to put enough effort into looking after long established ones. Apart from the fact that this seems somewhat at odds with the FSA’s current emphasis on treating customers fairly, it was clear that a number of advisers see schemes where the life office has failed to implement streamlined technology as being obvious new business targets for advisers working with life offices which have got their processes in order.
It is clear from recent market events that stockmarket analysts currently value life offices in run off more highly than those that are actively attracting new business. While removing the strain of new business costs may make a closed book look more attractive than a live one, in reality, especially in the highly competitive group pensions market, it is still necessary to develop new services to assist existing customers. There are undoubtedly insurers in the individual market operating on the basis of providing a minimal service to closed-book customers. A number of advisers suggested that liberating employers from providers with poor e-commerce capability is a bit like shooting fish in a barrel. On this basis, providers failing to upgrade their systems are making a false economy.
Member communications is an excellent example of the areas where employers are expecting to see powerful online services. Although the Government’s pension aggregation project has, at least for the time being, been shelved, personally, I will be surprised if it is not resurrected at some point as part of personal accounts. This does not remove the need for consumers to be able to get a clear understanding of the likely level of their income in retirement.
Ideally, such services should offer a full range of functionality enabling the user to either get some simple headline figures or be able to examine a range of outcomes. This would include what-if analysis, the effect of additional single and annual contributions, sacrificing part of the pay increase as pension and the effect of earlier or later retirement. I recently had the chance to see some of the new services Fidelity is currently offering in the US to support investors who want to get a better understanding of their finances. (See this week’s Money Marketing).
It was very obvious from what I was shown that these have the capacity to considerably increase the scope for advice and also that UK pension providers are going to need to significantly enhance their offerings in this area over the next 12 months if they are to keep up.
Such tools should not only allow the member to look at the benefits from the current scheme and state benefits but also be able to take into account the effect of any other pensions they may have benefits in or any other investments or other potential income in retirement. Where a provider is not offering a full suite of such services, they are in effect inhibiting the member from recognising the value of their pension contribution and undermining the contribution itself. If employees do not recognise the benefit, they will effectively not see this as part of their remuneration.
More and more adviser firms see detailed management information as one of the ways in which they can add considerable value to employers. Ideally, the adviser should have the ability to interrogate the data held by the provider, including transaction history, summary pages providing breakdowns by membership category and funds invested as well as benchmarking against other schemes in similar industries and locations.
Through this data, advisers can benchmark an employer’s scheme and help them understand how their own benefits packages compare with their competitors. This can be especially important when it comes to helping the employer achieve higher staff retention.
With the general changes in industry remuneration combined with the increasing number of insurers that no longer pay initial commission on pension contracts, it is becoming ever more important for advisers to be able to develop new income streams and services to support their group pensions activities.
Cutting commission may appear an obvious way to reduce the new business strain on insurers but with the spectre of personal accounts beginning to cast an increasingly long shadow over the group pension market, life companies need to be careful that in their haste to cut their own costs they do not end up undermining the distribution process. If product manufacturers are not going to pay distributors, those manufacturers need to deliver to the distributors’ products and services that are so outstanding that the employer will immediately recognise the additional value they bring and be prepared to pay the distributor for the service insurers are no longer willing to cover the cost of.
With compulsion potentially looking a cheaper option for many employers, advisers and providers need to work together to ensure that the private sector alternative to the Government’s latest attempt to achieve pensions for all provides a better quality solution both in terms of service and returns. Life offices with closed pension books that are not significantly investing in technology to support their remaining customers are likely to see a rapidly accelerated decline in the volume of funds they are managing.
A small number of pension providers continue to rise to the challenge of delivering better and better pensions services year on year. They are likely to be well prepared for the emergence of personal accounts. Those providers who are not making such investments should, I believe, seriously examine if they would not be better exiting from the group pension market sooner rather than later.