Pension Fund Administrators And The Challenge Of Real-Time Data
Pension matters might not be particularly captivating, that is, until changes are implemented. When the so-called Uniform Pension Overview (UPO) was introduced in early 2011, out of 1.2 million web visitors on a single day, only 60,000 of those citizens were able to access their UPO on that day. Questions about the ‘virtually inaccessible website mijnpensioenoverzicht.nl’ were raised even in parliament. The minister at the time stated: ‘Partly due to financial reasons, it is not feasible to dimension the infrastructure behind the website to handle such a peak.’
Now too there is a link between data and provision of information, but compared to the introduction of UPO, the impending modification of the Dutch pension system will have a far greater impact. The new system relates to the second (additional pension accrual through the employer) and third pillar (additional individual pension insurances) - not the AOW (state pension) - and impacts various groups. In the first place, of course, the more than 3.3 million individuals who have already retired. Additionally, the group that is yet to retire - around 25,000 individuals per month, or 4 percent of the working population on an annual basis. Lastly, of course, the rest of the working population that is accruing pension, numbering over 10 million people. Generally, the younger the age, the less interest they have.
The essence of the current system lies in achieving a guaranteed final benefit after a certain accrual period. In the past, participants could deal with this relatively passively. However, in the new system, no one can afford to remain uninterested. One of the key elements in the new system is that pension accrual is less predictable: during economic adversity, less is accrued or paid out. Conversely, pension fund administrators will provide more transparency to pension participants. In the new system, the fund keeps track of each participant's personal share of the collective pension assets. The system is structured such that fluctuations are smaller for older employees and greater for younger employees - because there is more time to recover from investment setbacks. Participants will witness their capital growing or diminishing and will have inquiries about it. They will want to understand the impact of life events - marriage, divorce, changing jobs, emigration, death - on their pension and possibly on the circumstances of children and/or partners.
Depending on the options they choose, participants in the new system can also take action: there are more possibilities to manipulate the outcome. In the new system, for instance, if employers and employees wish, they can choose to together maintain a separate portion to absorb setbacks - this is often optional in flexible defined contribution schemes. Furthermore, pension beneficiaries can make decisions about how the accumulated capital should be utilized: for instance, disbursed or reinvested.
The legislation has been passed in the First Chamber of the Dutch Parliament, but not everything is set in stone. The variability in the final effect of implementation must be considered. This applies to the timeline as well: the starting date is currently set for January 1, 2028, but it could well be postponed again.
Significant impact on three fronts
Aside from effectively guiding and communicating about the changes in the system, it is our opinion that the largest change will only come after the deadline when the new system takes effect. We anticipate significant impact on three fronts.
Firstly, we expect a multitude of questions before and during the transformation process - administrators are undoubtedly aware of the need for extensive information and communication campaigns. The first deadline is on January 1, 2025, already: by then, employers must have a final transition plan ready. This deadline could lead to the first substantial surge in participant questions.
Secondly, we anticipate a continuous increase in the number of questions directed towards the front office after the system change is implemented. As mentioned, participants might seek explanations about where their last premium was invested, why specific results were achieved, and what the current status is; they might also wish to take action. Peaks in customer contact might also be triggered by negative economic news or geopolitical developments.
Thirdly, we expect that assertive participants will result in a heavier workload for pension fund administrators - leading to a higher number of changes directed towards the back office. Participants wanting to make adjustments will often require personal advice or status updates.
According to Article 48 of the Pension Act, information for participants must always be accurate, clear, balanced, and available in a timely manner. Most administrators already possess portals and/or apps. However, in the new system, administrators face the challenge of obtaining the correct, accurate, and most recent data - often originating from various sources - and presenting it in real-time to both the customer and the employee. Participants must be able to make decisions based on this information. Consider a pension beneficiary who wants to decide whether the accumulated capital should be disbursed or reinvested.
One of the most critical questions in this context is how ‘old’ the information - investment value or status updates - shared with participants can be. Administrators and participants do not need to trade in real-time like a trader, but up-to-date data will likely need to be 'fresh' every day. It does not help that no standards or norms have been agreed upon for this purpose.
Substantial implications for IT architecture
Whatever choice is made in this regard, it carries significant implications for IT architecture. Providing real-time data demands much from the internal (IT) organization. The question is whether all administrators feel the necessary urgency regarding this specific real-time aspect. Employees with customer contact benefit from insight into a comprehensive participant profile. Direct access to information viewed by the participant on the app or portal is an important part of this - it enables employees to better anticipate (potential) customer inquiries. How and with what technology can the necessary data be unlocked? Another aspect to consider: more questions with potentially longer average conversation times will emerge, which has staffing implications for the front office.
Apart from data management, this also requires technical adaptations. Automating service processes (further) can assist to minimize peaks in service provision. This way, employees can focus on service that adds value for the participant directly, while keeping costs per participant as low as possible. Many administrators are actively working on streamlining their IT landscape.
The assertive customer perspective
Pension funds strive for the lowest possible costs per participant and the highest possible service quality for participants. These two aspects often conflict. To complicate matters, while new investments in IT and the front office are necessary, cost level and service quality increasingly motivate funds to switch administrators.
Funds still often make the decisions regarding infrastructure and architecture from the current perspective. The new reality has not yet fully permeated here. The call to administrators is to also actively weigh in the assertive customer perspective in preparation for the new reality and not be tempted to think that this is a purely internal transformation issue. It is essential to recognize that the customer is different. The individuals will be the same, but the behaviour will undoubtedly change.
Essay by Floor Ekelschot, manager at Valcon, and Elger van Vooren, partner at Valcon. Published in Management Scope 07 2023.