What the pensions industry can do to reach technology utopia

In contrast, one commentator quoted in a Pensions Expert article on blockchain urged pension trustees to start “engaging aggressively in developments in technology”.

I am not saying the transition from monolithic legacy misery to enlightened modular utopia will be easy

While I am not quite as cynical as Douglas Adams, neither would I suggest that pension providers need to be frantically chasing cutting edge technology developments. Pension provision is a marathon not a sprint, and a more measured approach is required.

Pensions industry lags behind other sectors

But the pension industry is undoubtedly lagging behind other sectors in the technology stakes. There are some good services out there, but in general the online pension experience falls very short of consumer expectations set by other sectors.

Similarly, there is still too much manual processing in the back office, and the time taken for common transactions such as transfers or withdrawals is far longer than similar tasks might take for other industries.

The legacy burden borne by pension providers is well documented. The need to support old pension products for many decades after they were launched while keeping up with increasingly complex regulations has created a uniquely challenging legacy system landscape.

A key feature of too many pension providers is the monolithic administration system built on obsolete technology; expensive to maintain, tortuous to connect to the outside world, and a veritable labour of Hercules to replace.

The answer to these challenges does not lie in any one technology, system or supplier. Simply throwing out the old system to replace with a new one based on the latest technology is just an expensive way of creating the next legacy millstone around your neck.

Financial services are increasingly delivered to consumers by a network of cooperating organisations rather than just one provider.

Expect rapid improvements and frequent change

That network is getting ever more complex. The ‘open banking’ and pensions dashboard initiatives are symptoms of this broader change and we can begin to see a world where each organisation exposes services for others to consume, combine and enrich to provide something more useful to the customer.

In this brave new world, pension scheme members may well interact with their pension via another party rather than directly with the scheme administrator. Perhaps they will prefer to use some personal finance portal to get a view across all their finances and to issue instructions to providers.

And looking ahead, pension administrators will be consuming services in a similar way from investment managers, banks and payroll bureaux to meet their operational needs.

The technology estate of successful pension providers of the future will be characterised by loosely coupled system components and a legion of third-party services all communicating with industry-wide open standards.

Improvements will be rapid and changes frequent as components and services are regularly switched out for something better and new partners engaged.

Adopt outward-looking approach to IT

I am not saying the transition from monolithic legacy misery to enlightened modular utopia will be easy.

It will require some careful architectural thinking and a much more outward looking approach to IT: collaborating with competitors on open standards, networking with emerging suppliers to find new services and partnering with third parties.

There are certainly some exciting technologies emerging and maybe the likes of blockchain, machine learning and chatbots will transform pension provision.

But I do not know which particular technology will mature into a productive tool. Or when that might happen. Nor when it may subsequently become obsolete.

The goal for pension providers, then, is not to champion any particular technology, but to position themselves to exploit new technologies and services as they become useful and quickly move on when something better appears.

This is also good advice, incidentally, for industry-wide initiatives like the pension dashboard where the focus should be on open standards, interoperability and competition, rather than choosing a specific technology supplier and tethering us all to another legacy millstone for years to come.

Ben Cocks is founding director at Altus Business Systems