Can DC survive these four key challenges?

Those who have seen these threats and are turning them into opportunities will thrive, while those who do not are unlikely to survive the long term. 

Demand for technology

The biggest change the industry has seen over the past three years is the sheer volume and variety of people looking to access technology and the information it provides. 

Auto-enrolment may prove to be a major catalyst for technology taking hold.

The increase in younger people saving for their pensions will mark a major shift in demand and expectations.

Used to the convenience of internet banking, app-based loyalty rewards and social media, this new breed of customer will rightfully expect information to be clearly presented and easily accessible online. Pensions must catch up, and catch up fast.

The biggest change that the industry has seen over the past three years is the sheer volume and variety of people looking to access technology and the information that it provides

Investment in technology will help put the customer first by giving people what they want, when they want it – something that the industry as a whole has failed to achieve.

However, rest assured, taking action now will reduce pension administration effort, errors and cost in the future.

Big data and member privacy

With investment in technology comes the issue of data. There is the potential to gain a wealth of data about scheme members that could be used to adapt to market trends and offer the best products and services.

The rise of hybrid robo-advisers across diverse markets, including the US, Japan and Australia, is just one example of the possibilities that are emerging. But with this opportunity comes increased risk.

Now, more than ever, it is vital the trustees of DC schemes are keenly aware of the risks of inadequate data availability and privacy legislation.

In particular, trustees should look at cleaning their member data, evaluating the way in which member data is processed, ensuring email addresses are up-to-date, obtaining appropriate member consent, putting into place a clear analytics strategy and addressing privacy concerns.

Flexibility v cost

Trustees and employers increasingly find themselves walking a tightrope between offering greater flexibility and keeping costs down.

This is a difficult balance, especially as it is hard to be sure how much flexibility scheme members would actually be willing to pay for.

One of the key challenges in the coming months and years will be balancing cost and flexibility while delivering the new pension freedoms.

A scheme that is able to successfully communicate the new options available to members, and the risks involved, is likely to have a significant advantage over its competitors.

Administrators will need to identify the most efficient methods of delivering client requirements while maximising value.

Transparent and fair charges

Given that members cover their own management costs in DC schemes, it is important to be transparent about charges.

The need to protect workers from high fees is clear. However, for the charge cap to work most effectively, customers must be able to easily compare schemes.

Charges should be standardised across the industry so people can make an informed choice.

We need to get to the point where transparency is automatic and we have providers competing on price and quality of the product, rather than through complexity in charging. 

The organisations that tackle these challenges head on and invest in technology will be the ones that grow and thrive.

The industry needs to cast off its inward-facing, parochial image, and begin innovating for a customer-focused future. 

Michael Mann is a board member and member of the policy and strategy subcommittee, and Girish Menezes is a member of the policy and strategy subcommittee, at the Pension Administration Service Association