A technology gap perpetuated by legacy systems in workplace pension platforms has left the retirement sector lagging behind in the innovation stakes, but disruption is coming
Driven by a wave of disruptive fintech startups in areas like neo banking, payments and insurtech, the financial services industry has been forced to embrace digital transformation over the last decade. Yet one of the largest markets of all, pensions and retirement, has largely been left behind, overlooked with lower-hanging fruit elsewhere.
By operating in very much a long-term, highly regulated sector, incumbent workplace pension platforms have faced less pressure from outside innovators than other segments of the market, creating a retirement technology gap. Innovation, historically, did not need to be a core competency for most sizeable retirement savings providers, putting them off from investing the large sums required to upgrade legacy systems.
But the rapidly evolving pensions landscape has created an impetus for change. The rise of defined contribution schemes, fuelled by auto-enrolment and regulatory changes allowing more freedom over pension pots, has left employers paying over the odds due to the inefficient processes of providers and their ageing workplace pension platforms.
“The pension industry has quite an archaic way of thinking about technology, whereas for most other industries technology is the thing you need to enable anything you are doing,” says Michael Watkins, director of retirement propositions at Smart, a leading retirement technology provider in the UK. “It is only a matter of time before a number of pension industry providers are caught out for having waited too long to update their technology. If you don’t adapt to the situation you are in, you will very quickly go bust.”
Even if a provider’s current software has been operating as expected, necessary upgrades and enhancements can be problematic. Software introduced even just a few years ago is likely to be out of date by now, and many tech providers will charge extra for enhancements or new versions and may no longer offer support for older editions.
For in-house systems, it costs money to maintain a fully skilled tech support team capable of reacting to these changes and implementing regular updates. In addition, a bespoke system needs to be able to “talk” to many other clients and providers to process transfers in and out. Without significant investment and scalability, providers will find it hard to keep up with changes to other systems that are vital to their ability to operate.
“Most workplace pension platforms are at least 16 years old and are often wealth platforms that then tried to do workplace pensions when suddenly auto-enrolment arrived and meant more than ten million people needed to get one,” says Will Wynne, co-founder and group managing director at Smart. “When it was just large companies, it could sort of work because there was enough money for inefficient technology to still be profitable. When smaller employers joined, the market was terrified about scalability.”
The broader picture is that this is a challenge which is not insurmountable. The benefits that technological innovation has brought to other financial markets can be viewed as incentives and opportunities for the pensions sector, providers and consumers alike, creating value and efficiencies and driving better outcomes and competitive advantage.
With a background in finance and high-scale ecommerce platforms, the founders of Smart spotted an opportunity to create a more agile and cost-efficient pensions solution that works at the volume required. Designing its systems from the ground up, and in the cloud, Smart reassembled the key pieces and reimagined user experience with technology at the heart. Crucially, by releasing code up to 30 times a day, Smart can constantly iterate.
“We do a lot of research to understand what is working, what is not working, where are the painpoints, and then we can evolve and release new features, tweaking things as we go daily,” says Wynne. “With the incumbents, meanwhile, if you are using one of the underlying software providers, you’ll be lucky to get quarterly updates. Typically, it’s biannually or annually. Then you might have to get a whole new version of the platform and be running two different types. We have one platform for the whole world and it can be configured for every local market and client, wherever they might be located.”
A recent study by Smart highlighted the pace at which retirement is changing, accelerated further by coronavirus, which has prompted many to pay closer attention to their retirement income. Some 13 per cent of over-55s said they plan to delay their retirement due to the pandemic. In the UK, specifically, there is a growing desire to manage retirement saving and spending without any outside assistance, amplifying the need for solutions that help them understand their position and make better decisions.
In the same survey, Smart and YouGov found more than half of UK adults aged 50-plus worry about being able to afford their lifestyle when retiring, just one fifth see retirement as the single event it was the past and 47 per cent would prefer to manage all their retirement finances themselves. These statistics reflect large shifts in the way people want to retire, intensifying the gap in the ability and technology to guide them on the journey.
Smart’s fully integrated digital platform is approaching one million savers across the UK and other countries including the Republic of Ireland and Dubai. The team is currently hiring a further 100 engineers, supporting Smart’s forecast to reach ten million members on the platform within a couple of years. This scale provides unique insight into the behaviour of members and interactions with their savings, which can be used in partnership with clients to improve the outcomes and overall experience for members.
In the same way Smart has revolutionised the accumulation journey, it is now revolutionising the decumulation journey through its Smart Retire solution, enabling individuals to chart their entire investment life plan from beginning to the end.
“Retirements are no longer a one-off event and everybody’s is different. As our systems were built at the individual level, we can personalise every investment journey and strategy,” says Wynne. “When you get to the end of your working life, you can take the money you have accumulated, break it up and use it in a sensible, flexible way through the course of retirement. You can have personalised investment planning all the way through your life and then flow that into retirement. That’s not been possible until now: a truly end-to-end life journey that reflects your own circumstances, needs and beliefs.”
For more information please visit www.smart.co