Since 2015, those UK pension savers hitting retirement have (in the words of the Rolling Stones) been 'free to do what they want', when it comes to how they wish to deploy their pension pot. The idea of buying a compulsory annuity has been retired and, for the first time, pension savers have freedom of choice over how they invest post-retirement.
Change brings opportunity, and the life companies have been quick to respond with a whole new range of post-retirement investment products designed to generate income in old age.
And it's not just those hitting retirement that are the opportunity for life companies, business is growing at the front end as well. Since 2012, auto-enrollment in workplace pension schemes has drawn in new money, which will now accelerate from the 2019/2020 tax year in the UK with employer contributions rising from 2% to 3% and minimum employee contributions increasing from 5% to 8%.
Globally, the defined contribution (DC) pension market is also on the rise, with assets for the first time exceeding those in defined benefit (DB) schemes in February this year. Total global pension fund assets are now close to double their size of ten years ago.
But these new freedoms and inflows are coming at a price for providers. Typically, UK life companies have been around for a long time and there has been significant M&A activity over the past two decades. This has brought together legacy books of business, all housed on legacy administration systems which have been patched up and stitched together over time.
It's therefore common for administration systems within life companies to be on early generation platforms, often supported and supplemented with highly manual spreadsheet workarounds. On top of this, the new opportunities around pensions freedoms and auto-enrollment require products and systems that are different from those in the past, distributed through new digital distribution channels.
So what does this mean for life companies? Well, it means that as business grows, the constraints of legacy administration systems become even more exacerbated. And these constraints are complex.
UK life companies need to maintain multiple accounting views and tax ledgers to support reporting and regulatory requirements and process unit-linked funds from different books of business with different pricing policies. All on systems which are often old, slow and at risk of errors.
As life companies have become digital at the distribution front end to seize the customer opportunity, the increasing imperative is for them to also digitize the administration back end of their operations, bringing all legacy systems together on a single unified platform, with automated exception-based workflow to significantly increase operational robustness and efficiency.
At Temenos, we are seeing increasing interest from life companies following our announcement in March 2019 on the work we have done with Canada Life, developing the Multifonds Global Accounting platform to overcome the operational challenges faced by life companies and open up new opportunities for growth.
For those who embrace the opportunity and throw off the constraints of antiquated legacy systems, they'll be freed up, to do what they want, any old time.