Heywood Pension Tech
There exists an ambivalence towards digital automation beyond the sphere of the pensions scheme – either DB or DC. That’s the findings of a recent Heywood and PASA survey focusing on digital administration.
Even though the vast majority of schemes (86%) consider it important, only a little over half (53%) consider it to be very important. This highlights a prevailing theme that while digital administration is considered important by schemes, whilst not being a primary focus.
While most favour payroll automation, when it comes to integration with other functions such as treasury and accounting, the interest drops considerably to a 50/50 preference.
That should not come as a surprise. A pension scheme is a complex machine with many moving parts, with many having a fiduciary, moral or regulatory responsibility that must be monitored and reported upon.
However, while many see automation and digital admin as important, there is a considerable number who, for one reason or another, do not.
Almost two thirds (61.1%) consider automation very important and 28% quite important. That means a little over one in 10 schemes do not consider it important at all.
Challenges facing schemes
According to the survey, the key obstacles to achieving digital administration remain the cost of implementation, the time taken to implement and a lack of understanding about what it could deliver for the scheme.
These last factors – that its value is not recognised, and its benefits are not considered tangible – show a lack of understanding about the potential benefits that is at odds with the high importance placed on digital admin as a concept.
This lack of understanding is stark when compared with regulatory requirements, which are the primary trigger for data projects, yet they polled a little over half of cost.
The data shows that schemes must constantly identify their priorities and this response suggests that digital admin is not considered important enough – or not all of the key stakeholders have been convinced of spending the money. A future survey might probe whether a lack of consensus is at the root of this answer.
"A quarter of the way through the 21st century, fewer than one third believe they are highly embedded in their digital journey. That leaves a lot of schemes with an awful long way to go."
It’s broken, but why bother fixing it?
Administration has developed a culture over the past 30 years of driving down costs at every opportunity. There has been an unwillingness to pay the price to achieve good administration in order to secure levels of data and service that are better than ‘just’ good enough to get by on. The result of reduced prices has been a reduction in quality.
As a result, we can understand how so few schemes (fewer than 5%) believe they are fully embedded in their digital journey.
Almost 30% consider themselves highly embedded with work still to do – such as projects like dashboards – but we did not ask this question in the survey.
However you cut it, roughly one in five schemes remain at the early stages of the digital admin journey. Furthermore, almost half declare they are moderately embedded.
Given the penetration of automation and integration demonstrated by the survey, this is not an encouraging disclosure.
There is a mismatch between what some schemes say is important and what they are actually doing. Regulatory compliance trumps all other functions, including making digital admin better so that compliance can become easier, cheaper and more meaningful.
It’s not a cultural divide – it’s a chasm
We have already established a mismatch between the aspirations of schemes to deliver digital admin and the reality of what has been achieved thus far.
Most schemes believe digital admin will improve their administration with increased processing (70%) and by improving saver engagement (more than 60%), the X factor for any scheme communication project.
However, four in every five schemes (81%) admit they have not considered understanding their savers’ needs.
Improved accuracy and a reduction in errors is important for more than 50%, then comes cost effectiveness, suggesting considerable tension when assessing the cost/benefit of digital admin, as it almost splits the industry in half.
The fact that overall reporting capabilities are considered more important than regulatory requirements again suggests a focus on cost and a cultural divide that prevents schemes from pursuing their digital journey with greater vigour.
More than a third see how digital processes could be used to bridge the skills shortfall that has become so acute within pensions admin in general.
It is interesting that improved audit comes just behind reducing the risk of fraud. This makes the assertions about increasing engagement being – and more importantly efficiency – appear rather ironic.
This article forms the second part of a series that analyses the survey findings and the current position of digital pension administration in the UK. The full whitepaper is available to view here.
Read Part One - Digital pension administration in 2024 - where are we at?
