PenTech is for life, not just for Christmas
17 November 2016
This article first appeared in Professional Pensions on 15th November 2016. https://www.professionalpensions.com/professional-pensions/opinion/2477381/pentech-is-for-life-not-just-for-christmas
The early part of the 21st century will be defined by the rapid proliferation of technology in every aspect of our lives. Whether it is how we manage our personal finances, access travel services or even order a take-away, technology has changed the way we interact with each other and the brands we consume.
But it is not just in our personal lives that technology is having an impact. No industry, including our own, has been impervious to it. The development of new pensions technology – or PenTech – has the potential to change the way we work, formulate decisions and act on them. The challenge is ensuring we harness this in the right way to achieve the necessary long-term goals and objectives.
For the defined benefit (DB) pension fund world, PenTech has largely been seen as a means to simply speed up existing processes and functions, akin to the change from an abacus to the electronic calculator. Increased efficiency is certainly one benefit of PenTech, accessing sophisticated analytics in real-time instead of waiting weeks. But I feel that should not be the end of the story.
PenTech has a more strategic role to play. Don't just automate what you were doing before, but take the opportunity to do things differently. That will allow the pensions industry to tap into the full power of PenTech.
This has never been more important. This has been a testing year for DB pension funds, with volatile markets, regulatory tension and rising deficits making front page news and proving a major distraction for trustees and corporate sponsors.
So let's use PenTech to reinvent how we do things, on top of doing them faster and at lower-cost. Technology is not just a toy – a whizzy looking dashboard or app that may well engage the user in neater visualisation, but stops there. PenTech provides the industry an opportunity for fundamental reform.
Pension fund trustees and sponsors are still working at tackling the alarming duplication of work and number-crunching across their various advisers. It is crazy to allow this kind of operating approach to perpetuate. It's like a family living in the same house each having their own individual front door. You just need one front door, and several keys.
Trustees have the power to lead the necessary transformation – in fact, it is their responsibility to do so. They should take the lead in addressing the dysfunctions of traditional approaches and governance structures.
Along the path of bringing pensions truly into the 21st century PenTech world, they will need to overcome some natural resistance – for example, incumbent advisers reluctant to adopt efficiencies that might reduce their share of fees.
There are several proven working case studies to draw on to help light up the path towards a new approach. The early adopters, who started a few years ago around the time Skyval was launched, have reaped significant benefits already.
Of course, it isn't and never should be about technology for technology's sake. Collaboration will also be a key ingredient for success.
Trustees, sponsors and their advisers must change the mindset for how they work together to move decision-making forward, not just faster, but more smartly and effectively. How many funding valuations or investment strategy reviews feel like Groundhog Day for trustees and sponsors?
Charles Darwin once said "In the long history of humankind... those who learned to collaborate and improvise most effectively have prevailed." This must now also be the mindset of the trustees, sponsors and advisers responsible for delivering a £2trn pension promise to millions of people.