PenTech must facilitate better decision making, not hinder it
January 12, 2017
If last century’s science fiction were to be believed, the 21st Century should have been a time of technological wonder. My morning commute transformed by a hoverboard and meetings being held in a hologram format. The reality, I’m afraid, is not quite so exciting. But the developments we have seen in technological terms means that the opportunities to change the way we work have never been so great.
This has been recognised by The Pensions Regulator whose recent consultation on 21st Century trustees focuses on the best way to drive up standards of pensions trusteeship over the coming years and decades. It is timely that the industry should come together and debate this, given the changing nature of the role and the challenges that modern trustees face, but also the opportunity afforded by new and emerging pensions technologies – or PenTech.
Let’s start with the challenges first. The investment challenges alone – be they volatile market conditions or a prolonged low-interest rate, low growth environment – are complex and in many ways unprecedented and will require a greater degree of expertise, experience and guidance from trustees if they are to be tackled effectively.
At the same time, a trend of increasing collaboration between trustees and the sponsor is changing the role of trustees. Increasingly, trustees are being asked to combine disparate sources of management information to take a strategic, long-term view as to how the risk in their scheme should be managed.
But, in helping trustees respond and adjust to these changing challenges, new innovations in pensions technology – PenTech – can be a double-edged sword. Whilst they can certainly increase efficiency and improve decision making, ubiquitous information can also have the opposite effect, overloading users and leading to decision-making paralysis.
So, the challenge for the industry – trustees, sponsors and their advisers – is how, in this changing and increasingly complex world of pension scheme management, we can ensure that we’re leveraging the full potential of PenTech to support new, more effective ways of working, rather than being over-burdened by it.
Good progress has already been made in a number of areas. We can see positive examples of trustees and sponsors embracing technology and using it to help increase efficiency and accuracy in their day-to-day activities. For example, the use of web-based analytics tools is putting information in the hands of trustees, helping them to better understand the position of their pension funds, but also to take action.
As an example, PenTech now enables pension funds to receive quick and cost-effective access to scheme-specific pricing from the buyout market, allowing them to better understand the right time for them to transact.
And there are direct benefits for the member too. Member options exercises, for instance, can now be planned and designed with more speed and precision than ever before, thanks to advances in PenTech. By being able to use member-level data, schemes can model the impact of different member-option exercises and ensure maximum take-up and better return on their investment.
Clearly, there is much potential for PenTech, but key will be how well it helps users to separate the wheat from the chaff. The 21st Century trustee will be defined by their ability to identify, find and act upon the right data. And it will be incumbent on their advisers, and the regulator, to ensure that they are fully equipped with the training, knowledge and tools to do this.