Technology is often proclaimed as the great liberator of pensions administration. With an envious eye on the revolutionary developments in B2C markets, we have been trying to liberate much-needed efficiencies by developing member-driven self-service portals. With the promise of reduced frontline support, better quality member data and a more informed membership, schemes and administrators have continued to develop digital engagement platforms to try and entice members to engage with their pension savings. But, even the best developed, marketed and adopted portals still have shockingly low initial registration rates and even worse return visitor statistics – members are stubbornly and persistently disconnected. So, do we need to rethink our approach to digital? And, are we getting maximum return from continuing to develop and promote engagement at the member level?
The problem of a disengaged digital membership is most acute in the defined benefit space. Late adoption of the technology, a reticence from sponsors to spend more cash on DB solutions and few modelling options means general take-up rates have been embarrassingly low. Where inroads have been made, and have yielded real tangible efficiency and cost savings, is in the move to digital DB communications that circumvent expensive postal and fulfilment costs. But still, viewed from the perspective of industry outsiders, our progress and saturation even in this space isn’t impressive. 45 years since email was invented and most pension schemes still do not have this critical piece of data for contacting people – the Pensions Regulator does not even recognise email address as a basic requirement for record keeping.
There is a reasonable argument that DB members do not need all the access and functions of a digital platform to support them through their retirement journey. One of the main reasons trustees and sponsors want to deliver online solutions to their members is to assist them in decision making. The inherent requirement of a risk transfer model, such as the move from DB to DC, is that the burden of decision making by the end-user becomes more intense. The information, decisions and actions that are taken at a group level in the DB model are divested to individual members when it comes to DC schemes, meaning they need more data, more frequently. The only credible way to support this decision making is to make all options, modelling and data available online. But DB members do not have many decisions to make, and the big questions that they do have need to be answered with input and guidance from professional advisers.
Do we give up on front-line digital for DB members?
If we were to design the perfect administration process then we would probably not start digital development today by looking at the needs of the member. Instead, we would more likely look at the primary inward data flow from the sponsor. In fact, this is exactly how many of the largest newcomers to the administration market, the master trust providers, have approached using the technology. The administrative challenge of auto-enrolment was not the need or motivation to encourage members to engage with saving, it was to deal with a huge number of new employers, massive data sets and the greater frequency of changes. The response from the market’s most successful providers was to drive all this engagement through digital channels.
Client portals, as they have come to be known, appear in many different forms. Some are used to allow scheme sponsors or trustee representatives to view individual membership records and others are used to handle and support all interactions and data flows between the parties. The latter is where potential really exists in the DB space to improve process and data quality. There are four key areas that client portals can be used to improve standards and better support member outcomes – for all types of scheme.
Client portals can allow real-time data quality assessments to be performed before data is submitted to an administrator. This process normally involves the employer uploading their data sets to a client portal for it to be cross-referenced in real-time against the administrator’s data. This can uncover any number of inconsistencies between data sets from membership status conflicts to unreasonable-in-period contribution or salary changes. Acknowledging that these checks are often performed retrospectively by the administrator once they have been received, real-time systems often compel employers to update or change data to ensure it is wholly accurate before submissions are made. Not only does this approach force the continual and progressive improvement and management of data, but it also provides an additional layer of visibility directly to the sponsor on the quality of data they have previously supplied.
In a pensions world increasingly attuned to external cyber threats, it is surprising how much inbound employee data still flows into administration teams through insecure email systems. Whilst most administrators have systems in place to secure outbound email transmissions the same cannot be said for inbound data flows. Many sponsors still send scheme data to their administrator through email. Even password protected emails are no longer regarded as a secure data exchange system and data being supplied to administrators using this channel is left open to interception. Client portals not only secure data flows between parties, but also have additional audit and logging features that can support compliance functions.
Taking member contributions from deduction to investment in the shortest time possible is a fundamental aspect of DC administration. Even with the best processes in place, a manual data submission, testing, reporting and acceptance process can still take days to complete when compared to the minutes and hours cycle time that can be achieved through a client portal. Once received, uploading and analysing contribution data and then reporting any exceptions back to an employer can often take days when processed manually; this is compounded where systemic issues are found that require investigation and re-submission by the employer. Comparatively, where this transaction is handled online, the analysis and exceptions are reported virtually instantly, with the sponsor being able to take corrective action immediately.
Outside of the pensions industry, the wider world is now talking in terms of digital platforms providing “ecosystems” that support third-party applications and services. Banks will soon start supporting APIs (Application Programming Interfaces) that allow any number of other service providers to independently access data to support their customers’ interactions. This technology, whilst still in its relative infancy in the pensions industry, could have very real and dramatic benefits for members, trustees and sponsors. Instead of developing solutions directly focussed on limited actions by a narrow group of end users, client portals could be, and are being, developed to support these broader API solutions that allow end users and other stakeholders to access data when and where they want.
API technology could allow real-time data sharing and integration between sponsor, administrator, actuary and member; thereby making annual, monthly or transactional updates between the parties completely redundant. In turn, members could interact with their pension benefits via digital wealth aggregation platforms or a pensions application of their choosing, rather than relying on their scheme or administrator to supply the end-point solution.
It should not be a case of trustees or administrators deciding between client or member portals. Both have a place and can yield tangible efficiency, security and quality benefits. We should, however, be cautious of placing too much emphasis on technology, and more specifically online solutions, only having a benefit and application to members. Some schemes will profit more from improving data quality and efficiency through digital data exchanges. All DC members will benefit from having their contributions invested more quickly each month whilst only a small proportion will benefit from being able to view their fund value online. A good digital strategy needs to capture all stakeholder requirements and prioritise the delivery of online platforms to those where maximum return and benefit can be gained.
By Toby Clark, Client Relationship Manager