Britain's pension industry stands on the launchpad of massive change. In April 2001, stakeholder pensions will go on sale. Their arrival will herald the biggest shake-up in the market since the introduction of personal pensions in 1988.
The new pensions are a simple concept but their launch poses complex questions for financial services companies and their management teams.
To survive and prosper in a post-stakeholder world you need to ask some questions:
What is the overall market going to look like?
Why are you thinking of competing in the stakeholder arena?
What is your distinctive stakeholder proposition going to be or are you just assuming your competitors will fall by the wayside?
What are the economics?
How will your business operations deliver?
In the rush to get aboard the stakeholder bandwagon, it is possible that some of these and other issues will have been ignored. Who in the organisation is thinking stakeholder pensions two, three or five years ahead? The ability to do this and focus on a clear intent and competitive advantage will separate the winners from the losers.
The future market is going to look very different, with the downward pressure on costs across all financial services products. This poses an interesting challenge for most players for whom incremental change on current positioning is insufficient.
Choosing to play in the stakeholder market means some tough choices as you develop your business proposition. Why are you positioning yourself in the market? Why are you even thinking of getting into stakeholder pensions – to build a customer base now in anticipation of likely compulsion, to protect an existing customer base or to make money immediately? Where are you positioning yourself in the market?
Which customer segments are you targeting? Large corporates with technology-ena- bled employees or small to medium enterprises? Or are you aiming to cover all bases – and at what cost?
What margin can you deliver? This means addressing all areas of cost from product design to distribution and servicing. Taking costs out of your operation by eliminating duplication, simplifying processes and driving down system costs is only part of the solution.
Customer retention is fundamental. Many of the costs in a stakeholder pension are front-end loaded and the revenue stream largely back-end loaded. Stakeholder pensions can be moved virtually at will by customers with no penalty to themselves.
Who are you retaining? The intermediary, the employer or the employee? For example, what are you proposing that will strengthen your relationship with the employer? How are you going to pay for it?
Perhaps your proposition is predicated on cross-selling. Why? To increase loyalty and inertia or to deliver some profit if the stakeholder is being run as a loss-leader? Who are you cross-selling to – the intermediary, the employer or the employee? There are few examples of successful cross-selling in financial services.
How is your brand working to support your proposition? Does it create consumer, employer or intermediary affinity?
There is a sting in the tail. Competition will result in lower management charges for bigger funds and a lively transfer market. Some players will hold off in the early years and take a predatory stance when funds have reached economic scales.
If you are not one of these predators, what will you do to protect yourself? Does your economic justification reflect this downward pressure on prices? In fact, should you be an early mover?
All these questions need to be addressed before resources and brands are committed to what is a major challenge for any player. How effectively these are addressed will dictate who wins in this new game.