Huge growth in demand sounds like a great problem to have. In the past decade, participation in UK defined contribution (DC) pension schemes has seen a record increase. A combination of pull factors, such as a strong global economy and low unemployment, have been further boosted by push factors, including the phase-in of automatic enrollment.
Processes that supported lower volumes well enough may quickly come apart at the seams when put under pressure. Legacy systems are often strung together in an attempt to build out a complete solution, with hacks and manual processes liberally used to get it all to work. There are three big risks to this approach.
First, it is prone to errors. Mistakes in the DC marketplace are expensive and complicated to unravel and, naturally, shake consumer confidence. As the industry grows, long-time players are facing new competition, and bad news stories are counterproductive. Any time data is rekeyed or systems are not communicating directly with each other, there is a real risk of error. DC providers should see this as an unacceptable—and totally avoidable—risk to their reputation and competitiveness.
Second, it doesn’t satisfy the regulators. The pension regulators’ powers of oversight have grown significantly in recent years, and plans need to be much more diligent in their recordkeeping and preparedness for an on-site inspection. Here again, systems that don’t communicate with each other and manual processes to rekey and blend data simply won’t cut it. Anything less than full compliance is considered failure and comes with stiff penalties.
Third, it isn’t sustainable. It is understandable how the situation has unfolded over the years. One system works fine for the job it was designed to do, and that was enough when it was bought. Then another requirement arises, and another system is implemented. With a few manual workarounds, it’s up and running and it’s certainly easier than replacing the original system. And so the situation develops with a system here and a hack there until, at some point, it stops being easier to “make do” and wholesale change is needed. For many firms, that time has come.
SS&C provides technology-powered solutions and operational services, with years of multi-market DC industry expertise. Download our whitepaper, Embracing digital transformation in workplace pensions, to learn more about the challenges facing the UK’s DC industry and how digital transformation can help a firm overcome those challenges.
Asset Management, EMEA, Retirement, Wealth Management