The UK pension landscape is experiencing its biggest shake-up for generations. Meeting these challenges will require a range of skills and competencies but one of the clear areas when the industry can improve is in it use of technology to enable better governance of schemes and improve decision-making.
05 Oct 2017
Whether behind the scenes or in full view, fintech is transforming the pensions industry for the better. On the one hand, the government’s proposed pension dashboard is taking giant leaps toward a more connected, consolidated and collaborative pension sector, one where savers can monitor and manage multiple pension pots in one interactive dashboard. Meanwhile, a number of new entrants are using app-based services to encourage saving, pot consolidation, and some have even started to venture into the realms of true robo-advice.
Whether this change is government-led or industry-led, the pension landscape is experiencing its biggest shake-up for generations. Meeting these challenges will require a range of skills and competencies but one of the clear areas when the industry can improve is in it use of technology to enable better governance of schemes and improve decision-making.
Taking a step back, the opportunity for innovation in the financial services sector is considerable. Global investment into fintech companies has reached $3.2 billion across 260 deals so far this year . It’s especially interesting to see just how much of this investment is coming from established financial services firms, particularly in insurtech and regtech, with a significant increase in average deal value ($1.4 billion) over the last quarter.
The pension industry is a significant element of that market. Occupational pension schemes in the UK (both defined benefit and defined contribution), together look after over £2.2trn of pension savings for 39.2 million people across the UK . It’s not just a big industry, but also one going through some pretty seismic changes. The pension freedoms, auto-enrolment, tax changes and the gradual shift from DB to DC pensions, are all changing the way that pensions work in the UK, and the FCA has been busy implementing a range of new regulations to support this change.
One of the key issues which is gathering more focus from regulators and policymakers, including the FCA, The Pensions Regulator and the Pension and Life Savings Association, is to improve transparency, including a full and clear disclosure of all the investment costs charged by asset and fund managers for their investment services. Historically, there has been a lack of motivation to accurately report and communicate costs to trustees, pension scheme representatives and members, and whilst these always existed as part of the process, not enough has been done to measure costs accurately and present them in a way that can be used practically.
Whilst regulators are now moving in the right direction by tightening their governance standards around reporting costs, KAS BANK identified a gap in the UK market (using their experience in the Dutch pension market) and created the cost transparency dashboard to help with the actual presentation of the costs. This gives trustees a comprehensive means by which they can demonstrate and drill down into the total costs incurred by the pension scheme, including items such as transaction costs, which have been previously unreported.
But using technology to tackle cost transparency is just scratching the surface; pension schemes face a raft of governance challenges, ones that fintech is well-armed to face head-on. From deciding investment strategy, to managing fund and asset managers, or overseeing communications with shareholders and scheme members, to ensuring records are accurate, there’s a huge amount of administration that needs to be carefully managed.
The pension industry is not traditionally known for innovation but with the wide range of challenges facing the sector that needs to change – and soon. A committed focus on understanding and implementing the benefits that technology can provide will be critical. Only by doing something clearly different will schemes be able to improve decision-making through greater insight, and provide members with the best possible outcomes for their retirement income.