20 20 Vision Archive
Pensions: Simplicity is quite complicated
by Tracy Shadbolt
Published April 2004
The concepts that the pensions green paper is struggling with are nothing new. As long ago as 1660 Thomas Hobbes coined the famous phrase that: "the life of man solitary, poor, nasty, brutish and short." He also discussed the concept of a 'commonwealth' that needed to provide for its citizens.
We have now covered the 'solitary' part with mobile phones where we are never more than two minutes away from a chat with a friend or colleague even if we are in a meeting! We are also busy addressing the 'short' part: life expectancy has increased exponentially and there lies the difficulty.
INITIATIVES
To ensure that our ever extending old age is not nasty or brutish an adequate provision for income has to be made. Initiatives from both the European Parliament and the UK Government are all focusing on the need to encourage individuals to provide for themselves.
So far these initiatives have concentrated on cost and clarity. With the introduction of Stakeholder and ISAs homogenous products allowed the customer to compare simple products and make their own choices. The 1% ethic forced providers to focus on cost.
These initiatives have managed to put financial services in the news, they have not necessarily increased sales. Pensions simplification seeks to encourage purchasing by making the process easy. This will also mean that providers need to
- offer multiple routes and mechanisms to suite a client's particular preference
- address key questions the
client will have:
- can I change my savings options as the market conditions change?
- will I be able to build up my pension fund in the mobile job market? - address the client's need for protection so that their fund does not just disappear.
At the same time recognising that to gain good returns we have to pay for the advice, investment knowledge and underlying costs in a highly regulated market.
Unfortunately simplicity is quite complex.
None of the options listed above, to provide ease and simplification to the client, can be performed without complex solutions to support them.
The government has stated that its initiative will lead to fewer and easier to maintain systems. This may be true but does not take into consideration the intervening steps needed to get there and how much they will cost.
Pensions providers will need to consider:
- Quality of and access to data – ensuring that data is of the highest quality in accuracy and timeliness is key both in responding to regulation and providing services to clients. This will become harder and harder as data is received in an increasing number of formats from an increasing number of parties. In response there are a number of applications on the market that allow business rules to be defined to validate data and transform and distribute it effectively.
- Flexibility in processing rules – the concept of 'personalisation' has been around for some time but technology is now catching up and allowing this to extend beyond tailored documents. Centralised rule engines allow product rules to be re-used across applications and for these to vary based on a wide variety of attributes such as client profile, affinity group, sales channel matching client's needs.
- Collaboration – as products and processes become more standardised due to regulation and market forces companies should identify their true differentiation factors and collaborate where features are standard. An example of this would be the Marlborough Stirling initiatives through the Exchange that seek to shorten the sales process and lower compliance costs.
- Collaborative systems – innovations in technology are allowing insurers to put together more sophisticated services using existing components. The XML standards are developing daily with additions such as XBRL for business reporting and the speech interface framework that facilitates the interaction between speech and systems. The FSA's head of information management, David Anderson, said "Over time we expect the use of XBRL will help make the FSA easier to do business with. It will improve the internal efficiency and effectiveness of our vital regulatory reporting function, provide greater transparency around information requirements for regulated firms; and ensure that we are more responsive to changing data needs."
The trick for success will be to minimise the complexity addressing only what needs to be changed.