With all of the developments surrounding pension reform in continental Europe, how are technology companies coping with the demand? Not very well. The transition from defined benefit to defined contribution (DC) pension arrangements has forced product and technology providers to cope with processing and reporting requirements that are new, unique and complex.
The introduction of the euro and developments in Luxembourg and Ireland to create some form of ‘Pan-European’ pension products have all contributed to the idea that pensions will be more widely available, and sold, cross-border. The reality is, however, that the true battleground is still being fought at the local level. If you want to do business in Italy, you have to offer either closed or open funds; likewise, if you intend to compete in the developing German pensions market.
So where are all of the providers of technology to administer these new arrangements and where are the service providers prepared to process the data and money flows? It is fair to say that the DC pensions arena in continental Europe is far less developed than that of mutual funds and unit-linked investments.
In Germany, literally everyone is scrambling around to address the requirements of the new Riester products and Pensionfonds. Whether it is the large insurance-based technology companies such as FJA, COR or even CSC, or the established insurance providers, all have an enormous amount of work to enhance their systems to meet the very complex processing and reporting requirements for these new products.
In Italy, again, there are only a few serious considerations. Previnet and Accenture are probably the leading players for a third-party administration service to both open and closed funds while Unione Fiducaria has a strong base of users of its system. The growing trend, however, has been for Italian providers of pensions products to outsource the systems to technology companies in Ireland. Established technology and service providers such as Marlborough Stirling and newer players such as Percana are penetrating the Italian market by offering ASP and administrative solutions from Ireland.
Finally, in France, which does not have a pensions market per se, there is an established and growing company savings plan market. In this market, there is really only one system that is used by virtually every product provider. That system, Oryal from LineData, has had enough concerns associated with it that a number of the established players are attempting to jointly develop a replacement system.
All of this clearly points to opportunities for new entrants. In the UK, providers such as Marlborough Stirling are trying to position themselves to take advantage of these opportunities. The question is whether (and for how much) will they be able to enhance their systems. Others, such as US-based Sungard, have being trying to enter the Europe for years and have yet to demonstrate any success in the pensions market. There are even other initiatives structured around a consortium model, whereby product and technology providers link-up to spread the cost and share in the servicing of pension schemes.
So why is it that the technology solutions for DC pensions, and quality ones at that, are so few and far between? Historically, the demand for quality and timely information has been low. Moreover, insurance-based systems in the UK and Europe have never been known for their efficiency or their flexibility. One has merely to look at what is happening in the UK with the introduction of stakeholder pensions to see the cost and re-engineering that product providers have had to undertake just to remain ‘in the game’; and most, if not all, are operating at a loss. Finally, service has not been demanded of product providers and the systems, commensurate with this, have not had to provide information in a way that promotes service.
So who will the winners be? There is no doubt that the local providers (technology and service) in the major markets in Europe are spending considerable amounts of money to position themselves to provide solutions to the growing investment and pensions markets. Between new entrants and the established players in each market, solutions will be developed and sold to address the immediate requirements. But will it be good enough? That remains to be seen, but it certainly is a tremendous opportunity for some organisations to invest ‘ahead of the curve’ to meet what everyone agrees is an unmet need.
David Calfo is a director of Provizion in London