Technology and industry collaboration is now essential to ensure advisers can meet client expectations for fast and efficient service, says Paul Pettitt
The retirement planning market has been changing at such a rapid pace that we are looking now at an entirely different landscape to that of just a few short years ago.
The process is continuing. In the 2012 Budget, the Chancellor confirmed that the state pension age - which is due to rise to age 67 between 2026 and 2028 - would be set on ‘automatic review' to make sure it keeps on rising if people keep on living longer. Defined benefit schemes have been slowly fading away, replaced by defined contribution schemes in the workplace, and there has been a significant increase in self-invested pension plans.
Add to this the likelihood that as well as working for longer, people will be likely to change employer several times and possibly have two or three careers in their working life. It becomes easy to see how the retirement planning market has both challenges and opportunities to consider.
One of the most significant challenges the new landscape presents is that many people are going to be holding more than one pension pot - potentially, multiple pension pots - which they will have acquired through their working life.
The Department for Work and Pensions, for example, anticipates that auto-enrolment and a highly mobile jobs market will lead to around 4.7 million additional pension pots in the system in the years ahead.
Efficient aggregation of pensions will be essential from the financial services industry's point of view as well as that of the government and general public.
Other challenges and opportunities revolve around the UK's demographics. Increasing numbers of baby boomers are approaching or just entering retirement age, so will be moving from the accumulation stage of their retirement plan to the decumulation stage. As a result, there are growing numbers of people reaching retirement with defined contribution pension pots that need to be converted into a retirement income.
This is contributing to the greater emphasis being placed on people maximising their retirement income by shopping around to get better value for money when buying their annuity.
This continual evolution of the market is seeing increased pre- and at-retirement activity, rising data and fund transfer volumes, as well as greater service expectations among increasingly web-savvy consumers.
Key to ensuring the industry can deliver on the opportunities as well as tackle the challenges are two things: efficient technology and collaboration between industry participants.
It seems strange to consider that before 2008, when the Options Transfers service was launched, transfer business was largely manual and paper based. Much of an adviser firm's time in processing an annuity purchase, for example, was taken up co-ordinating and chasing up paperwork.
Since 2008, the time taken to complete the transfer of data and funds that enables a consolidation of pension funds into the chosen annuity has been cut significantly. Pension to annuity transfers that used to take on average 51 days are now at under 10 days (Q4 2011) and 3.5 of those days are accounted for by the banking (BACS) process.
Same-day transfers have also been achieved by Options Transfers using CHAPS payments and the system handles tens of thousands of transactions every month. Although originally developed to support the at-retirement transfer process, Options is now seeing higher volumes for pension to pension transfers. This demonstrates that the transfer and consolidation of multiple small pots is being addressed through the Options Transfers service.
Collaboration between product providers, platforms, back-office software companies, Origo and IFAs has driven this development. Without it consumers would not be getting today's more efficient service.
However, as the at-retirement market grows and consumers' expectations of their service providers go on rising, so there is a need to continually develop the service available.
As a result, Options Transfers has been further developed to deliver not just cash transfers but also in-specie re-registration of assets.
With the RDR deadline rapidly approaching and a new regulatory authority (the Financial Conduct Authority) looking to ensure the way financial services firms are structured, how they operate, the products they develop and how they are sold is aligned with customers' needs, areas like re-registration of assets are a rising up the priority list.
The financial services market is undergoing a period of fundamental change, which requires that we continue to improve workflows and processes. As an industry body, Origo is at the heart of that development. Working collaboratively with all the industry, we deliver those efficiencies and improvements and an overall better service to the consumer.
Paul Pettitt is managing director of Origo
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