While group pension scheme software can substantially reduce the scope for error and cut transaction costs, there is still much debate as to who will foot the bill for its implementation
In his address at the recent adviser.tech workshop, Stewart Ritchie, director of pensions development at Scottish Equitable, identified the tight environment in which the pension industry is now operating and the importance for intermediaries of finding alternative cost-effective ways to do business.
With the Government making employers responsible for stakeholder plans, the intermediary's involvement in the provision of individual pension is changing, he said.
According to an ABI research, the savings gap in the UK, the basic difference between what individuals are saving compared to what they ought to be saving to maintain their level of income in retirement, is £27bn. Ritchie thinks the encouragement by regulators of a more open pension market option in order to close this gap will change and enhance the role of the adviser.
'Traditionally, advisers have specialised in two types of clients when it comes to pensions, corporate clients and high net worth individuals,' said Ritchie. 'In the present market, advisers will continue to supply these two areas but with different angles.
'For corporate clients, the adviser will supply more group and stakeholder pensions, whereas with individuals, when before it was retirement annuities, now it is personal pensions and income drawdown.'
Within this dynamic market, Ritchie observed that margins are being squeezed and keeping costs low has become one of the most important factors. In this difficult environment, the advisers above all, have been looking for alternative avenues for cost reduction and Ritchie thinks making better use of technology is one way of doing this.
He said: 'Group pension software will reduce the scope for error while importing and updating data and this in turn will reduce the transaction cost.
The software will be able to generate exactly how much money needs to be paid in contributions, which is of fundamental importance since it would meet the legal requirement of keeping a contribution schedule and avoid administrative delays in dealing with contributions.'
The software can also deal with what ifs and this will enable the adviser to monitor what the client's position is and get a fast result of changes in contributions if a client changes their situation, by retiring early for example, he says.
Moreover, according to Ritchie, some pending changes in the industry might help the intermediaries reduce costs.
For example, the Government mentioned the introduction of the composite benefits statement in its white paper in July this year.
The composite benefits statement will list all past and future contributions of a client, making it simpler for the intermediary to trace the clients previous contributions.
Ritchie said: 'The Government has explicitly said in its spending review in July that it is committed to putting forward the composite benefit statement. This can help advisers eliminate drudgery because at present, when advisers deal with a new client, they have to find out a lot of information. The clients might have a complicated pension history, like frozen pensions, private pensions and corporate pensions, all of which have a bearing on advice.
'The object of a composite benefit statement would be to automatically provide the adviser with this information, cutting down on hours and eliminating unnecessary costs.'
There are some hurdles in implementing this system however. Ritchie pointed out that the Data Protection Act would require clients to give their explicit authority before the intermediary can extract data.
If the intermediary needs data from more than one source, the clients will have to give his approval for all these places.
'One solution would be to make it allowable for the adviser to use the electronic signature of the client, with the client's permission, and use the electronic signature at all these sources,' he suggested.
The other question that arises is who will pay for the cost of such a system. Ritchie thinks that in terms of a system for the industry as a whole, it has to be the Government.
'The white paper suggests that the DWP understands that but what it has not indicated is the boundaries for spending,' he added.
'Therefore we have no idea how much the Government will spend and how much advisers will incur. However, I am optimistic that we will see this system in place in three-to-four years' time.'
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