Providers must improve systems and services to survive: Deloitte
Traditional Dutch pensions providers, including pension funds, must “strongly improve” their services for their clients in order to survive if the mandatory participation of companies in industry-wide pension funds is abolished, according to Deloitte.
Speaking at a congress of the Netherlands’ Circle for Pension Specialists (KPS), Deloitte partner Evert van der Steen argued that providers still operated like “wholesale organisations”.
He said he expected that the “large mandatory participation” in sector schemes – in addition to the “small mandatory participation” in a pension fund for employees in the Netherlands – would be abolished within five or six years.
As a consequence, providers would have to compete with commercial insurers, which he said were much better prepared for the future.
In Van der Steen’s opinion, industry-wide scheme providers offered insufficient diversification in client service, communication and when facilitating individual choices.
He contended that it was absolutely necessary that the pensions sector fully focused on technical innovation for client services.
“In particar in the interaction with clients, we noticed that the pensions sector is significantly behind the commercially driven insurers and banks,” he said.
Another problem is that traditional providers in the pensions sector usually struggle with legacy issues, like outdated systems.
“By contrast, newcomers such as Centric focus on IT, the options for scaling up and continuation,” said the Deloitte partner. “The pensions sector had to work with low budgets for a long time, whereas banks and insurers already started investing heavily in innovative IT solutions 10 to 15 years ago.”
If there was a sufficient budget, it was often spent on keeping existing systems running, which would also negatively affect providers if there was a change in the pensions system.
Changes such as the increase of the target age for the state pension often need to be carried out manually.
Van der Steen recommended that pensions providers focus on how to improve their IT systems for scaleability, robustness and sustainability.
Last year, pensions provider Syntrus Achmea Pensioenbeheer said it would stop servicing 23 industry-wide pension funds, as its new IT system could not cope with the multitude of pension arrangements of the sector schemes.
The new system was introduced to replace several legacy systems in the wake of past mergers. Errors caused by the old systems had already triggered an exodus of pension fund clients.
Several of the leaving industry-wide pension funds decided to take Centric as their new pensions provider.