Keyed into technology
Although pension regimes can differ significantly from country across Europe, pension funds share a belief that technology is critical to successfully meeting the challenges that face them today. A common theme across the region is change – new regulations, new behaviour in markets where assets are invested, new competition, and new demands from members for information and even control of their savings. Almost everywhere, pension funds are being forced to upgrade or acquire new systems or technology service providers to help manage costs and increase efficiency, improve management of assets and liabilities, and provide greater transparency and access for members.
IPE’s survey of the technology trends at pension funds in 10 European countries conducted over the past year revealed a varied landscape, from countries like Italy where almost all functions are currently outsourced to traditional services suppliers, to Denmark, The Netherlands and Sweden which are pioneering new ways of deploying technology to improve the services they offer to their members. But even in the most conservative countries where the regulatory regime is only beginning to change, pension funds are aware of the necessity to make optimal use of the latest business and communication tools.
In Italy, those providing administration, performance measurement and other services to pension funds are preparing for the changes that are unfolding in the country’s pension environment. With billions of euros likely to be injected into funds in the coming years with legislative changes to the TFR, a deferred compensation fund currently held by employers, the funds are going to need considerably more tools to support their expanded management responsibilities.
Service providers such as Centrum PensPlan and Mangusta Risk are developing mechanisms to allow them to transfer some of the applications they currently run on an outsourcing basis to the pension funds themselves. “As long as a pension fund does not have sufficient size to perform the functions in-house, these are provided as services by the Centrum_PensPlan platform,” said Michael Atzwanger, general manager of Centrum PensPlan. “When the fund reaches an adequate size, and in-sourcing becomes cheaper than the services provided by the platform, we offer to the pension fund the possibility to in-source, using our software, while we provide support to the pension fund staff.”
The most conspicuous current trend in the approach to technology by Europe’s pension funds is their use of the internet to provide information and communicate with their members and, in some cases, allow them to make decisions regarding the investment of part of their savings.
Denmark is a pioneer in this area. Pensionskassernes Administration (PKA), a joint administration company for eight healthcare workers pension funds, has a web interface that allows its members to do what-if simulations on their accounts, changing length of work or size of contributions to see the impact on their pension, as well as information on investments and returns. It also allows them to communicate with administration staff via email. “The whole philosophy is transparency via shared information,” said Claus Skadhauge, head of communications at PKA.
Meanwhile, ATP, the organisation that administers Denmark’s labour market supplementary pension scheme, has developed a new e25m platform that holds members’ money separately and enables them to direct its investment via the internet. Members can go into their accounts and define their individual risk profiles, as well as to make in-depth analyses of various funds in terms of past performance and underlying cost structure before making investment decisions.
Customer relationship management systems are also increasingly used by pension funds across Europe to improve communication with members. These systems - essentially databases that gather all relevant information on members and make it accessible immediately and from a single point - allow pension funds to deal with member queries at their call centres more quickly and efficiently. Dutch pension funds, such as the massive government and educational workers fund ABP, Blue Sky Group which handles the pension funds for Dutch airline KLM, and Interpolis, which manages the pension funds of a number of Dutch companies, all now have CRM systems that are integral to their operations.
In terms of systems for pension administration, trading, portfolio management and performance and risk measurement, certain suppliers have been more effective than others in meeting the evolving needs of Europe’s pension funds. Stockholm-based Trema, with its Finance Kit portfolio management system, and Copenhagen-based SimCorp with its similar Dimension system have been particularly successful in creating applications that have the flexibility to meet a broad range of needs. Both suppliers offer comprehensive front-to-back office systems, with critical functions such as performance and risk measurement and the ability to link to third-party specialist systems for these and other functions where the user chooses.
Having a single system that was the most important consideration in selecting a supplier for AMF Pension, a mutual life insurance company and a UCITS fund manager serving the Swedish pension market. It chose the Dimension system - one of nine Swedish pension funds to do so - because it could support the whole investment transaction lifecycle, help minimise costs, and came from a stable supplier with a good track record. “There are not many European systems that will meet these demands,” said Birgitta Brandt, head of business support for asset management at AMF Pension.
For specialised functions, such as performance and risk measurement, European pension funds have tended to look further afield. The applications of Barra and Wilshire Associates, both based in California, and New York-based RiskMetrics Group are widely used across the region. Finnish multi-employer pension fund Ilmarinen Mutual Pension Insurance Company has implemented a risk budgeting tool from RiskMetrics, while the country’s Oko Bank Group Pension Fund has opted for Barra’s risk and portfolio management tools.
Certain countries have successful local suppliers that tend to dominate their markets. In the UK, Heywood, based in Cheshire, Claybrook, based in West Sussex, and Comino Group, based in Berkshire, are leading suppliers of pension administration systems in their home market.
Interest in their systems is now coming from abroad too. Recently, the pension fund of the European Central Bank (ECB), based in Frankfurt, acquired Heywood’s system, because it seemed to best fit its requirement for extensive flexibility in its operations. “We have a very flexible pension rules so people can choose out of all kinds of options when leaving and transferring,” said Paul Haenen, administrator, ECB pension fund. “And we very young, so we have not experienced all the cases that can happen yet, so we needed a developer that could be very flexible and adapt to our needs.”
The particularities of pensions in Iceland are such that pension funds are almost obliged to adopt locally developed software. Eighteen pension funds - almost half of those in the country that are actively receiving contributions - now use a system called Joakim supplied by VKS, a subsidiary of Kögun Group, Iceland’s largest IT software and services supplier.
The system covers the process from the receipt of contributions to payment of pensions and compensation, and allows pension fund members to access various information on their accounts over the internet.
Meanwhile, major Icelandic pension fund Almenni Lifeyrissjodurinn is co-operating with a number of other local pension funds on the development of a system to meet Iceland’s particular regime, including its unique liability structure.
When Austrian multi-employer and banking and insurance sector pension VBV-Pensionskasse wanted a performance and risk measurements system it looked across the border to Switzerland for the Quantax system from Comit.
VBV-Pensionskasse invests in a wide range of assets, including commodities and funds of funds, which require sophisticated analysis. “Modern technology is especially important for risk management purposes,” said Wolfgang Pinner, chief investment officer at VBV-Pensionskasse.
Instead of installing Quantax in-house, VBV-Pensionskasse uses Quantax as an application services provision (ASP). In the ASP model, the software runs at the supplier’s site - in this case, at the site of Comit’s partner talkfinance - and the supplier handles all technology and staffing issues, including implementation and integration with customer systems as well as data sources such as market data, reference data, and so on.
Besides freeing the pension fund of technical responsibilities, ASP speeds up implementation, and lowers the initial cost of the application because there is no upfront licensing fees, but instead annual, monthly or even per-use charges. Many software suppliers, such as Barra, Trema, RiskMetrics and VKS, now offer their applications via the ASP model, and more pension funds are choosing this option.