Pension funds boldly go
Pension funds are going online. With more and more websites under development and a significant number already working, the internet is providing them with an ideal platform to reach their members.
A recent survey by IPE on the use of the internet by institutional investors shows that around 80% of respondents access the web, not only from work but also from home, and it is becoming a very important tool of communication and information within the pension fund industry.
In the UK, the West Midlands pension fund, based in Wolverhampton, found that the web the best way to improve one of the major concerns: communication. “With more than 173,000 members, over 180 employers based in thousands of sites, and 49,000 employees, 600 living abroad in 33 different countries, we can say that communication is a bit of an issue for us,” says Mike Woodall, chief pension officer at the pension fund, with assets of £5.1bn (e8.3bn).
The pension fund is the administering authority for the local government pension scheme and went online in June 1998. “We have always had a very active communication that until recently has been mainly paper-based,” Woodall says. “We thought that the internet was going to be the best way to communicate, in particular with the advent of digital television.”
Woodall comments: “Pensions are an important issue for everyone and we wanted to give the members of the scheme access, not only to the generalities of the pension fund, but also to information on a 7/24 basis on their own pension.”
More than 37,000 have registered for the site’s email facility which “allows them to provide us with an enquiry that we will respond to without the need for letters that have to be signed and so on”, says Woodall.
“We do have a significant amount of traffic on our website with 200 hits per day, and an important amount of our business is now being transacted over the web,” Woodall says.
The pension fund has recently entered into a joint development arrangement with a company called Information Systems Europe, to develop a new pensions administration system where the main vehicle for communication will be the web. “And we also see that the communication with our employing bodies will also be by the internet rather than using paper-based forms,” he says.
In Brussels, VKG, the E5.05m pension fund for the medical profession, follows the same approach. “Our objective is to make our website our most important communication means,” says Nathalie De Maertelaere, communication manager at VKG. “We want to come to the point that a piece of information will be published on the web before we print it on paper.”
“Our priority for this year is to make it possible for individuals to become members of the fund with a simple electronic signature,” she says. “Soon it will be possible for them to consult, using a password, their own pension account and find their way first to simple but quite complete information, and then to go into further detail.”
Apart from the need for better and faster communication, members’ concern on how their money is being invested has been another good reason for pension funds to launch their own websites.
“Concerning our asset management, we have the same sense for detail,” De Maertelaere says. “Our members want to know how we manage their money and now they can read it on the web.” VKG’s website gives information on the asset allocation and the risk profile they follow. “We mention all the external managers we work with, including links to their own internet site.”
In Italy, Fondodentisti, the pension fund for Italian dentists, also includes in its website, apart from information on the fund statutes and the way the scheme works, a list of the asset managers in charge of the fund and the amount of assets each has under management.
Concerns about socially responsible investment are also increasing the number of people demanding more information on investment strategies.
“One of the reasons why we set up our website was that some of the members of our scheme were keenly interested in the type of companies we were investing in, from a socially responsible point of view, so we thought that it could be a good idea to put our shareholding details on the web,’ says Stewart Neil, chief pension officer at Liverpool-based Universities Superannuation Scheme (USS), with assets of £18.6bn. The USS was created in 1974 to administer the pension scheme for academic and senior administrative staff from UK universities and other higher education and research entities.
Its website was set last year and provides members with information on the fund’s rules, annual reports, and news. “Apart from the data included in the annual report and accounts we don’t provide more detailed information on investment returns or performance because we are running a defined benefit scheme. The benefits our members can expect are not affected by the performance of the fund,” Neil says.
In fact, only schemes running defined contribution plans or giving their members additional contributory options, can offer a more interactive role to their members on the investment side through the web, allowing them to access their individual accounts and choose among different risk profiles and check performance on a regular basis.
In the Netherlands, Mn Services manages the pension plan and other social schemes for the metalworking industry and other associated trades, BPMT. On its website, it gives a detailed summary of the scheme’s functioning and investment strategy and annual figures and investment returns. The fact that this information is available for the scheme members at any time makes it easy for them to get more involved in their pension plan.
One of the challenges for the coming years for most of the pension funds offering online services will be to increase the options regarding the investment side.
“In the UK, the evolution of the use of the internet by pension funds will be also driven by the 1% cap on the stakeholder costs,” says Mike Woodall. “In my opinion, the only way that this could be provided, in a cost-effective way, is by mass access using electronic means and I would forecast that the major players in stakeholder will actually be through the electronic platform.”
Another major issue is to increase the feedback from members on how and why they use the website , in order to be able to improve the services offered. “In our case it’s been difficult to say whether the people using our website are genuine members or just people who log in by mistake,” says USS’ Neil. “From the beginning we’ve been getting far more entries than we expected,” Neil says. Unfortunately the huge interest in the fund’s website was not caused by an increasing number of people wanting to learn more about the Liverpool-based pension scheme but by Star Trek fans looking for information on the spaceship USS Enterprise who got lost on the web.
As investors and fund managers are increasingly using the internet as an essential tool for their business, it is easy to forecast that the number of pension funds setting up their websites will also augment. What is basically at present an information source for fund members will soon become an interactive means for people to get more involved with their pension plans.