Changes in the group pension market in recent years can probably best be described as traumatic. The emergence of stakeholder pensions complete with price caps and the decline of final-salary business have dramatically increased activity in this area.
Vast numbers of schemes have changed the type of product and the provider. Commission levels have been slashed so it is even more important for advisers to streamline the processing and admin of schemes.
In fee-based cases, this becomes more imperative with the need to justify all chargeable activity to the paying client.
The most efficient ways of operating will involve making maximum use of technology. An increasing number of pension providers have been developing sophisticated e-commerce services to automate many of the processes for establishing and maintaining group schemes.
Over the last three months, my organisation has been carrying out an extensive syndicated research project, looking in detail at the scope of the facilities from leading pension companies. We have held workshops involving major group pension IFAs to gauge their views on the importance of the different services offered. This week, I want to explore some of the issues raised by our study.
It is clear from this analysis that the vast majority of providers have focused their resources on delivering services via their extranets rather than group business portals. Nearly all are now providing dedicated group business extranet sites for IFAs, employers and members. Increasingly, these are being supported by demonstration areas so that all parties to the group arrangement can practice using the facilities before moving to live transactions.
The establishment of the scheme is now predominantly taking place via the supply of extracts of employer's data. All providers responding were able to use a payroll file to set up the scheme, with this data being automatically populated to their mainframe systems for future use.
Just under 60 per cent of providers are prepared to share this data back to the IFA to enable them to populate their own back-office systems.
Adviser firms indicated that data sharing is seen as important as it can cut their costs in creating their own records. This was stressed by a number of 1st Software users who pointed out they were benefiting from being able to load scheme data. What previously might have taken two-and-a-half days now only takes two-and-a-half minutes using the bulk import facility created by 1st Software.
Three-quarters of providers are taking advantage of the negative affirmation process. The provider or adviser writes to all potential members of a scheme with a joining certificate, notifying them that unless they opt out of the scheme and give notice accordingly, they will be included in the scheme, with the appropriate contributions being set up.
This was viewed positively by IFAs and several said it was an essential process for the transfer of any big established schemes.
In the area of payment frequency, all providers could process monthly and annual payments but some are not able to process weekly, fourweekly or fortnightly payments to allow for salary payment cycles that might be more common for lower-paid workers.
A number who did not offer such payment periods did indicate the ability to accept ad hoc payments.
Dedicated extranet services are playing an increasing role in the delivery of information on existing arrangements. There is a clear majority of providers making basic information on member details, fund choice, total fund value and value by fund as well as transfer value available online.
A significant number of providers are making projected benefits and contribution history information available online. There is also a trend for some providers to allow the adviser or employer to define the extent of information available to members and employers.
Advisers' reaction to this was split, with some feeling it was best to roll out such functions to users in phases so they could learn how to use the different functions rather than being overwhelmed by a wide range of facilities. Others felt that, ultimately, the data belongs to the members so all possible facilities should be made available to them.
All respondents were providing lifestyle investment options despite all the talk of asset allocation tools in the industry. Currently, only onethird of providers have built such tools into their pension sites. Only two providers, Skandia and Standard Life, have extended these to include facilities to allow the IFA or employer to offer standard asset allocation strategies to users.
Companies have provided basic information to members but it does appear that it is only the exceptional few which have sought to extend these. Only 25 per cent of providers are providing cost of delay tools and one-third are providing what-if calculators. More effort is needed in this area.
Significant progress has been made in automating the group pension market but our research shows that some providers are substantially ahead of others.
Even if we see some increase in the price cap for stakeholder margins, we are going to continue to be under pressure and increasingly those providers which can best remove costs for all parties, not just themselves, could be at a significant advantage.