Technological developments will force pensions providers to specialise in either pensions administration or asset management, or to develop into a financial adviser, research by Dutch think-tank Netspar has suggested.
Bas Werker, professor of finance and econometry at Tilburg University, said that providers should start assessing their future position, citing the increase of both available data and computing power, “which will make it easier to predict risks at an individual level”.
However, he noted that this, in turn, could affect the desired level of solidarity between pension fund participants.
Netspar’s findings were published this month in a report by Werker, Bastiaan Starink and Wesley Kaufmann, all of Tilburg University.
The working group behind the report said it expected pension products to become simpler through standardisation and European legislation.
Werker said: “Pension providers could draw their view of the future on roughly four scenarios, based on fragmentation and concentration in both demand and supply.
“Fragmentation in demand, for example, reflects a situation in which every individual arranges a pension with a provider, which would lead to very many different suppliers, offering parts of services.”
He continued: “Currently, there are a limited number of both suppliers and groups of participants.”
In Werker’s opinion, pension providers must look into these kind of scenarios.
He suggested that social and technological developments should also be part of the discussions about pensions reform, “as these trends thunder through and can’t be stopped through legislation”.
The working group concluded that providers must specialise in, for example, efficiently offering a certain product in the pensions chain or offering financial advice.
“This advice is to become broader than just pensions,” Werker argued, “not only because of existing demand but also because providers could get access to more information about their participants.”
He recommended that providers should be divided into product suppliers and consultancies.
Additional Netspar research – on the impact of data science on options and advice – concluded that linking databases could strongly improve the quality of advice about choices.
According to the authors, linking databases would allow details about current and future income and assets to be factored in. Currently, pensions providers usually only have information available about accrued pensions.