IG&H has conducted numerous studies over the years for many pension funds, focusing on the preferences and risk tolerance of pension participants. One notable finding is that “the average participant” does not actually exist. Participants are very diverse, with widely varying opinions and willingness to take risks. This diversity is already well known in other sectors, such as financial services or retail. What is called a “participant” in the pension sector is referred to as a “consumer” in the commercial world.
With the introduction of the new Future Pensions Act (Wet toekomst pension, WTP), the government aims to make pensions more personal. Participants will build their own pension pots and have more freedom to choose, such as their investment options or how they want to withdraw their pensions. However, this also brings more risks for the participants.
The WTP requires pension funds to interact differently with their participants, who are essentially consumers. Funds must better inform and guide participants through the choices and risks they face at crucial moments in their lives. This is a big but also challenging turning point. Traditionally, pension funds have been focused on administration and technical pension rules, making it difficult to suddenly adopt a customer-oriented approach and place the individual at the center. This also applies to pension administration
organizations, which often share the same administrative focus.
A change in approach is not yet in sight
Currently, funds and administration organizations are primarily focused on the technical requirements of the regulator, the timeline for when the administration for the new system will be ready, and on budgets and schedules that are constantly being exceeded. This makes pension funds that rely on their administration organizations less flexible and agile, making it difficult for them to adapt to the new situation. In a time when participants are uncertain about what all these changes mean for them, this is not a good development.
Funds have two choices: they can accept their dependence on administration organizations and go along with their schedules and budgets, or they can try to become more independent by organizing (part of) the administration themselves. However, the latter option requires sufficient resources and capabilities. Administration is often seen as a combination of pension administration and customer service. Thanks to modern technology, which allows for easy data sharing between systems, it is no longer necessary to couple pension administration and customer service. In fact, it can be a strategic decision to organize these tasks separately and differently.
If funds do this, they can respond more quickly to the needs of their participants. They can demonstrate their value to the consumer, both financially (such as returns and cost savings) and socially (for example, through sustainable investments). They can also prove that they are good financial stewards and show how collectivity offers advantages.
Such a step forward is, of course, challenging and exciting. It requires thorough preparation, and above all, entrepreneurship and visionary leadership. But isn’t that exactly what consumers expect from one of their most important financial institutions?