RDR, Pensions Freedom and Online ‘triple-barrelled’ revolution, puts pressure on providers to improve ageing IT systems running legacy books

10 March 2016

Adrian Boulding - Retirement Strategy Director at Dunstan Thomas

During February, we ran an online survey asking providers how they are planning to update their legacy books to make them better attuned to customer needs post-Pension Freedoms. From a quick review of providers’ responses, there is no doubt that they recognise the need to make IT system changes to accommodate new functionality required by new Pensions Freedom options. For example, enabling Flexi-Access Drawdown (FAD) and Uncrystallised Fund Pension Lump Sum (UFPLS) withdrawals from systems running policies which were designed for annuitisation at-retirement, emerge as specific concerns for several providers.

It is also clear that there is little appetite for ditching the IT systems which underpin legacy books, despite these new demands being placed on them. There are huge risks from migrating to wholly new systems, which providers are concerned to avoid.

What are these risks? Firstly, it is very expensive to mount a migration-focused customer campaign. You need to try to move all of your customers to the new platform. However, you also need to offer them the option of staying where they are. Many may choose to stick with the old policy leaving providers with the headache (and increased systems overhead) of managing old and new administration systems alongside each other. It’s a bigger issue still if the legacy plans offer minimum income guarantees for example. If the customer loses these guarantees as a result of migration, the provider concerned takes on a big risk that the migrated customer will complain in years to come (normally at-retirement), and that the regulator will insist on compensation for customers that were disadvantaged by moving.

Instead, it is now possible to use the latest technology system such as the Digital Keystone’s Adaptive Portal to both extract and present data from existing legacy systems. It is also possible to use this new technology to bolt on new Pensions Freedom-specific functionality like UFPLS and FAD drawdown capabilities and enable delivery of appropriate statutory documents and tax liability calculations generated during these events. This eliminates the risk of migration while offering the benefits of the new options. The other option is to manage risk by outsourcing discrete administrative processes, like UFPLS withdrawals, to third party experts. Neither option costs the Earth. Indeed, if further changes are needed as a result of legislative or regulatory change, the costs of this change are effectively spread amongst all providers using that outsourced service. Technology and security upgrades can be implemented automatically within an all in regular monthly cost. The cost of staying up-to-date falls dramatically and is smoothed across 12 months or more.

The other issue is making it possible for customers to interact with providers’ legacy plan(s) online. They must gear up for two key requirements:

1. Single Customer View: Customers will want to see all the plans they have with you in one place online. This view must be share-able within providers’ customer service teams for those that prefer to pick up the phone rather than only self-serve online.

2. Slick online user experience: The online experience itself needs to look and feel slick and modern. The data set and user experience needs to be the same for customer service agents handling calls or web chats as it is for customers trying to do everything themselves online.

Online services need to eliminate admin delays or at least indicate exactly where a transaction is in a process or transaction. Statutory documentation needs to be deliverable in a timely manner as an electronic download as well as paper-based.

Speed is of the essence. When we do things online we expect near instant satisfaction. We need to gain the reassurance that the request we have made (or transaction completed) has been acknowledged by the system. We may well want to save or print the equivalent of a receipt which indicates that our request has been acted on.

They also need to build awareness of the existence all these service capabilities with existing members quite quickly, so that when any of them arrive at one of two key critical ‘transaction’ events – pensions consolidation or at-retirement decumulation – they will be inclined to stay with the incumbent provider rather than swap away.

Moving administrative processes and transaction capability online naturally makes it easier to transfer away from providers if they don’t look and feel up-to-date online. For the first time, providers will be truly judged on the ease of use of their interfaces with their customer online. And if it’s all too painful, disjointed or difficult, be prepared to lose large numbers of customers alarmingly quickly.

With this in mind, customer engagement is fast becoming the buzz phrase for providers. They are busy investing in profiling tools which help visualise what people should aim to save for retirement; and at-retirement tools which helps the over 55s make the best choices to minimise risks and optimise income in retirement. They are also seeking to deliver that all-important single customer view where all a provider’s retirement savings vehicles can be viewed in one place – helping consumers run the numbers and plan for retirement better, all from their smart phone in all probability.

There is an underlying assumption that many more consumers will be seeking to do all this through direct interaction with providers or platform operators online and via the phone. Less and less of us will be working with an adviser at-retirement – not least because most IFAs don’t want to approach us unless our retirement savings run well into six figures. It just does not make economic sense for them to do so in the post-RDR world.

So despite the fact that most policy holders in a legacy book will have been signed up by an IFA or tied agent originally, there is a strong likelihood that looking forward customers will make decumulation decisions without the aid of regulated financial advice.

The other issue about moving to the “I want it all and I want it now” online self-serve world is that this a not only about IT systems but may demands cultural change to ensure that they are doing right by the customer in every interaction, across any communications channel, day or night.

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