Corporate advisers should be asking tough questions about technology says Rob DeDominicis, CEO, GBST Wealth Management
Not since A-Day have there been so many furrowed brows in the workplace pensions industry. The birth of auto-enrolment, Nest and its low-cost rivals, the new breed of corporate platforms and a resurgence of interest in master trust arrangements make this a really interesting and exciting time in scheme design.
From a technology perspective, a key question for us is whether the latest-generation straight-through processing platforms can be brought to the occupational market. They’re already endemic in contract-based land, but is there space to read across to trust-land?
Our largest ‘super’ master trust scheme, BT Westpac, has a member:administrator ratio of 24,000:1, smartphone integration and the ability to interact via the bank’s cash machines. We know the markets are different in many respects, but the basics of good scheme management are the same. We look at the desired ratio of 4,000:1 in the UK and wonder what the hurdles are.
To our mind, the criticisms of DC from employers and trustees have remained steady for some years now. Administration costs are falling but remain expensive; MI is hard to get, inflexible and expensive. This makes governance harder, and expensive. And problems are difficult to rectify on old systems, making it expensive.
In our interactions with corporate advisers, employers and trustees, we regularly hear frustration with the basic solution design that underpins schemes. The issues they describe are ones which are being addressed in the contract-based market, but with a few exceptions the trust-based market is yet to make the jump from tried and tested if creaky technology to more adaptable systems.
To be fair, a few providers have started making inroads. We’ve been particularly impressed with BlackRock’s new master trust capability which appears to be delivering a lot of the flexibility we mention above.
So what are the hurdles? If we consider the key areas of solution design for DC schemes in the new world, we can get a decent bead on the challenges for providers and software developers to deliver the kind of outcomes that corporate advisers rightly demand for their clients. We think there are 5 key areas.
Firstly straight-through processing is the key to so much. Processes which don’t require human intervention move more quickly, experience fewer failures, and just work better. STP is oft-talked about but little understood and we think providers need to be really clear on which elements of their systems genuinely are straight-through.STP is not new, but many legacy systems simply can’t accommodate it.
Secondly, systems need the ability to deal with complex benefit structures.
Thirdly, an integrationist approach is needed – DC systems should really be ‘hubs’ which open their doors to feeds from other systems. These might be unit pricing feeds from insured fund systems, scheme-specific or blended fund feeds, stockbroking feeds, HR/payroll integration and all sorts of others. One UK workplace platform development we completed recently required integration with 19 different systems. Even bundled DC can’t be an island any more and systems have to reflect that.
Fourthly, too often the industry in the UK gets caught on the hop as the rules change. This is a symptom of how systems are built – too much design is down in the layers which require hard coding to change. New-generation systems bring flexibility up through the layers to allow mandatory changes to be made quickly and cheaply.
And finally, its different strokes for different folks – it is perfectly feasible for different audiences to have different views (or ‘user interfaces’) on the same data. Scheme information is just data. Those data can be manipulated and re-presented in lots of ways, and if there is one thing that enterprise-level software in all sorts of industries has got better at in the last 5 years, it’s how to deal with Big Data.
So that’s a manifesto we think corporate advisers and trustees should be demanding from DC scheme providers – on a master trust or bundled basis – when discussing restructures. Much of this functionality exists now, it’s just a matter of time till it hits the market. You should feel empowered to ask awkward questions about technology. If you can’t get what you want, it might be worth waiting. UK DC is an exciting space and we think it is next in line to benefit from the efficiencies technology can bring.