Transformation in Pensions Management

While the pensions and retirement income sector present great opportunity, there is also significant risk. Rising member expectations, increasing demand and volatile returns all threaten to unseat incumbents.

In order to thrive, pensions management firms need to look across the entire member journey, carefully considering how to develop people, data and digital integration strategies to deliver world-class, yet cost-effective, member experience. 

Three pillars driving the need for transformation.

Pressure from competitors and a volatile market, combined with increasing demand for better service, has created a need to undertake large-scale transformation. 

Increasing demand

The UK pensions and retirement income sector currently serves over 34 million consumers and collectively manages around £2.1 trillion in assets and savings. Over the next five years, these numbers will rise; the number of individuals aged over 65 is forecast to increase by 1.1 million, with people aged over 85 representing the fastest growing segment of the UK population (The Office for National Statistics).

In addition, more than 10 million Britons have started saving into a workplace pension thanks to Government initiated automatic enrolment  (The Pensions Regulator). This significantly expands the number of people who are members of a scheme and, considering increasing life expectancy, points to an explosion in demand.

Rising expectations 

Growing demand is being matched with rising expectations. As service providers in other industries create compelling propositions and same-day service agreements, these best-in-class responses are increasingly being expected as the norm across all areas of life. 

Previously a pension member may have been satisfied to receive written confirmation of their change of address four weeks after writing in; now a more responsive and easy-to-access service is expected.

Competition and volatility

While the introduction of automatic enrolment for pensions and the increases for Total Minimum Contributions (which rose from 5% to 8% as of the 6 April 2019) increases the volume of assets invested, pension fund returns continue to be somewhat volatile. 

The volatile investment market and continued reduction in pensioners with Defined Benefit schemes, where pensionable salary can be easily estimated, is resulting in an ever-increasing number of requests to pension administrators for information such as valuations and transfer-related activities. 

Alongside this, the increased freedom granted by recent pension reforms to withdraw pension funds and reinvest elsewhere has led to larger numbers of people taking the opportunity to manage investment risks themselves, to the tune of £21.7bn. In Q3 2018 alone there were 258,000 members withdrawing £2bn from their pensions (FT Adviser). 

With pensions being treated increasingly like a traditional savings product by many, and compared to frictionless experiences with other financial providers, it is clear that business as usual cannot continue.

Our expectations of pensions management.

Pensions administrators are increasingly being required to deliver improved service to growing amounts of people without a significant adjustment in resources. 

They are being judged on their ability to:

  • Deliver an excellent member experience
  • Enable members to continually access, and be informed of, their pension pots (e.g. self-service)
  • Support the seamless transfer of funds between schemes and investment portfolios
  • Provide all of this in a cost-effective manner

Not delivering on the above will only increase the chances that Scheme Trustees are open to the prospect of looking for alternative pension administrators where enhanced service promises can be made, and likely met.  

Building a world class pensions administrator

Given these ongoing challenges in the sector, how can pension administrators protect their future? We think the companies that will thrive will be able to successfully re-imagine, develop and maintain world-class member experience in harmony with a truly flexible and scalable operating model:

What consumer grade member experience really means.

Consumer grade member experiences are built on robust data using integrated systems and fully leveraged technology.

They involve pensions administrators being set up to process requests in real-time, including through digital channels, not just when speaking to members over the phone. Real-time processing will in turn increase the emphasis on advanced workflows, automated processes and systemised calculations.

Increasing the capacity and capability to re-design processes will be essential to ensure members experience a process of high quality that requires minimal effort, delivered in a timely manner.

Pension administrators need to take a look at the end-to-end experience of their members and ask themselves ‘what’s really getting in the way of great experiences?

In the example below we have reviewed the current waiting time for requesting a transfer of funds and included recommendations to create a seamless, and in some cases instant, service.

Robust data

An important foundation is a clear data strategy and governance model, which will ensure the right information is held, the integrity of critical data is managed, and that it is easily accessible to both people and systems.

Unstructured procedures and unclear accountability for data in all its forms has the power to turn the most simple of interactions into a painful experience for colleagues and members alike.
In a bid to tackle the impact of poor data practices The Pensions Regulator is now turning attention to the quality of scheme data. Compulsory scheme returns from 2018 onwards now include information on the measurement of data quality, focusing on two data categories:

Common data – encompassing identifying data such as addresses and other items all schemes must have present.

Scheme-specific data – covering data necessary for the effective administration of an individual scheme.

As a result, clear and actionable data governance strategies are required, with dedicated resource and ongoing management required to identify and maintain a desired future state beyond system migrations and initial on-boarding.

Knowledge management also serves a valuable role, providing easy, instant access to scheme rules and other key documentation ensuring administrators can quickly and confidently assist members through their chosen channel.

Aside from meeting regulatory requirements, robust data and knowledge management can enable administrators to use real-time collaboration tools, empower members to self-serve, and reduce failure demand; when all parties trust the information in front of them there will be a smoother and more cost-effective experience for all.

Integrated systems and processes

Understanding the touchpoints where members interact with you and provide data is key to designing consumer grade experiences. Are they always needed, or are there opportunities to reduce member effort? How could these interactions be streamlined, and how could administrators introduce options for members to self-serve or alternative methods of gathering data such as smart forms or electronic document verification & identification.

Thoughtfully integrated systems and processes can support risk management and compliance processes. They also reduce the impact of often labour-intensive tasks such as; real-time transaction analysis, online registration, data analytics and forecasting, while ensuring that internal behaviours are aligned with member protection policies and processes.

Digital systems should never sit in isolation. By embedding them as part of the entire member journey, companies can make hand-offs between digital systems and offline processes seamless, reducing the propensity for error, delays and confusion.

Fully leveraging technology

As regulators require increasing volumes of data, more holistically integrated technologies can streamline data capture and analysis, with data-mining algorithms enabling channels such as social media to be used to gauge member sentiment to identify and address issues early.

Developments in communication channels are now enabling organisations to engage with members in a wide range of ways and in line with their individual preferences. Technologies such as webchat, chatbots, SMS, etc are challenging the traditional customer contact channels of call, letter and email. This is creating opportunities to change the traditional tiered model of member contact, reducing the number of interactions and the amount of effort for all involved.

The opportunities that new technologies create make it important to take time to review and re-design end to end processes before introducing automation. Whilst RPA is often seen as a silver bullet to join up legacy systems, transformative results are only achieved when someone takes responsibility to question how the process can be simplified, exploiting technology to design low effort, high quality member experiences. 

Developing a flexible operating model

To support the delivery of a consumer grade member experience, establishing an efficient operating model, with flexibility to scale for future challenges, is vital to long-term sustainability.  A key component of this flexibility is to identify partners that can provide dedicated skills and expertise on non-core activities. As well as gaining access to latest technology and developments this also has the benefit of creating capacity within your administrator resource base to focus on client value adding activities.

Delivery framework

Delivering on your commitments to trustees, clients and members is key to long term success. To achieve this a relentless focus on operational performance is essential. Establishing specialist teams for on-boarding and rectification, as well as building an operational mindset across administration teams, will enable you to deliver consistent performance in line with stakeholder expectations.

Operational mindset and framework – Be passionate about delivering an excellent member experience on a continual basis, and not just when on-boarding or delivering a major change. Underpin this mindset with a robust operational management framework that has an appropriate cadence, as well as a set of forums and dashboards, to review the key metrics that ensure service standards are not only maintained but continually improved.

Specialist on-boarding team – Create a seamless member experience with a team of people skilled to deliver data migration, re-design processes, automate calculations, and codify scheme rules. Efficient on-boarding processes, a thorough understanding of the member experience, and better-designed communications will help meet the expectations of scheme trustees and members alike, whilst unlocking the potential to significantly reduce costs.

Dedicated rectification teams – Create a dedicated structure separate from Business as Usual (BAU) that will ensure the successful delivery of any rectification programmes without impacting BAU delivery.

Talent and competency – required skills and development

As expectations change, organisations must find better ways to respond to member requests. Increased levels of automation and technology use could create a scenario where organisations need fewer, but more knowledgeable team members. To make this model work businesses need to become better at understanding knowledge requirements and developing skills in their administration teams.

This will further feed requirements for well-designed knowledge management systems, to document and quickly access scheme rule details, and the expertise to establish and maintain them. 

In a scenario where better systems move the focus away from specific pension scheme knowledge there will be an increased focus on customer service skills that will be delivered through a blend of traditional and digital channels. 

Location strategy

Once processes have been optimised and technology fully leveraged, further cost-to-serve benefits could be obtained through a consideration of where processes are completed. Where you work and how your teams are organised significantly impacts the creation of value, with poorly allocated work across networks of locations resulting in poor quality, productivity and morale.

Recent times have seen a challenge to traditional offshoring approaches with some schemes moving work back to the UK to both reduce overall complexity and improve member experience. The advent of ‘home shoring’ also opens up another avenue where remote working can drive significant cost-benefit opportunities, such as lower attrition, access to skilled resources and increased flexibility.

To deliver the best member outcomes at an appropriate cost, ensure that your location strategy enables the right work organisation and an appropriate number of hand-offs. In the case of off-shored/near shored processes, make sure their location is aligned on the level of discretion, member contacts and hand-offs required for excellent member service.

Your next steps forward.

1. Think end-to-end in your member experience

Understand where your member interactions start and stop. Carefully consider how these interactions are reflected in your internal processes, and how these will differ according to member profiles and preferences.

2. Consider data and technology when reviewing processes

Review processes, data and technology within the same project in an integrated manner and not as discrete exercises.

3. Have the right people in the right roles

When building out your operating model, utilise your experienced resources on activities of high value. Reducing time spent on less complex tasks is the first step in building flexibility into your operating model.

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