Landscape for pensions
As the age at which the State Pension (Contributory) becomes payable in Ireland gets steadily higher, then so the Irish workforce, in line with much of Europe and the rest of the world, is faced with the prospect of having to work longer and save more to ensure an adequate level of income in retirement. For good or bad, this has brought about a heightened awareness of pensions in Ireland, which is now beginning to permeate the general consciousness of old and young alike.
It is imperative that the pensions industry in Ireland, particularly corporate and third party pension administrators, recognises this increased awareness and is able to embrace and embed various IT advances into its pension software applications to keep pace with change and enhance member outcomes.
Growing use of technology
Whilst it is rare for the pensions industry to find itself at the forefront of innovative IT solutions, it is noticeable that trustees, corporate sponsors, insurers and administrators are beginning to witness, and take advantage of, the growing emergence of cloud technology, which removes the requirement for businesses to maintain pension administration systems within their own IT infrastructure.
Talk to most administrators of Irish pension funds and one of their key frustrations revolves around the speed of response and service delivery received from their internal IT department, whose remit is likely to extend to the entire business operation, not just the pensions department. Those responsible for running pension schemes want to be able to focus on doing their jobs effectively without having to concern themselves with being at the whim of the IT department.
Using cloud technology transfers risk and supports CIOs and IT directors in delivering improved efficiencies to their businesses, whilst securing a faster and more responsive service delivery for the users of the pension administration software. It can also form an integral part of a disaster recovery solution. Allied to this, cloud technology can free up physical office space as it removes the need for IT hardware, whilst saving costs on potentially expensive future software upgrades. Cloud technology also has the added benefit of future proofing IT architecture and can provide flexibility and scalability in response to changing business demands.
Need for automation
However, being at the forefront of the latest high level technology is one thing but all this counts for little if the pension administration software is not fully automated, whether it be for Defined Benefit (DB), Defined Contribution (DC), Hybrid Schemes, Personal Retirement Savings Accounts (PRSAs), Approved Minimum Retirement Funds (AMRFs) or Approved Retirement Funds (ARFs).
For many administrators of Irish pension funds, there still remains an over-reliance on spreadsheets and manual intervention when carrying out DB calculations (and, sometimes, contribution allocations and switches for DC schemes), even when the data is in a good state. This is clearly an inefficient way of working. It adds unwanted and unnecessary steps to the administration process and naturally means that the likelihood of errors and the potential for paying inaccurate benefits is greatly increased.
The automation of calculations and bulk processes, such as benefit statement production and pension reviews, using dedicated pension software, should be a prerequisite for all administrators of Irish pension funds. It goes without saying that the chosen pension administration system needs to have a proven track record with a proven software provider and be robust, flexible and legislation compliant.
Just as being at the forefront of the latest technology is somewhat diminished without a fully automated pension administration system, then so the presence of a fully automated and legislation compliant pension administration system is somewhat diminished without clean member data.
Clean data is of paramount importance for every administrator of an Irish pension fund because, without total confidence in the accuracy of what is held, other fundamental processes such as the automation of calculations serve little purpose. Data issues for administrators typically occur with historical data and, for Third Party Administrators (TPAs), when new schemes are acquired and data is accepted in good faith or when it is known that there are inaccuracies or incomplete information. It is therefore vital for administrators to regularly monitor the state of their data by undertaking frequent data validation exercises so that issues can be readily identified and addressed.
Data validation should not be seen as a tick-box exercise but, rather, a hugely important and essential process which paves the way to ensuring that benefits can be calculated accurately both now and in the future. Clean data which is stored in a consistent format on a pension administration system avoids the need to trawl through endless files in the hope of finding member information that should be on the system but is not.
It should not be forgotten that Trustees ultimately own the data and so it is their responsibility to put measures in place to ensure it is accurate and held in the most appropriate place; in other words, on a pension administration platform. If benefits are paid incorrectly, which is bound to occur if data is not fit for purpose, then it is the trustees who shoulder the responsibility and are liable.
To encourage members of Irish pension schemes to become more pensions literate and take a greater interest in their financial well-being, it should be high up on the agenda for trustees to ensure their administrators are able to provide suitable web access for members of any schemes for which they have responsibility.
Web solutions can take the form of a static member site, which will generally provide basic information about the scheme and enable documents, such as benefit statements and illustrations, to be downloaded securely for the benefit of the member.
Alternatively, more efficient and effective web solutions can link to the actual pension administration platform, thereby enabling members to perform their own illustrations in the case of a DB arrangement or model their own benefits using a range of assumptions in the case of a DC style arrangement. Of course, this assumes the underlying code behind any illustrations is accurate as indeed is the quality of the data.
As technology continues to advance, it is imperative that the pensions industry in Ireland does not get left behind but, rather, moves with the times. For many, cloud technology is - or will be - the next chapter for pensions technology. However, making use of more sophisticated and cost-efficient technology is not sufficient on its own. It needs to be complemented with competent administrators working on flexible and resilient pension administration platforms, which have fully automated calculations and processes sitting alongside good, quality data.
Getting the basics right and making the best use of the available technology takes time and necessarily requires careful forward planning; but such an approach can only be to the ultimate benefit of the sponsoring company, administrators, Trustees and members alike.