By Vaughan Jenkins
Not long ago, firms paid pension contributions to providers by means of a cheque and a list of employees the monies related to. This was symptomatic of antiquated and frequently disparate workplace IT systems that firms used to manage pensions, payroll and personnel (the 3Ps). It was often unclear where the most recent information was held, and systems didn’t synchronise data. While advances in IT have combined the 3Ps into new Human Capital Management systems, from enterprise solutions (Workday, Oracle, SAP) through to smaller scale systems, pension providers have battled with legacy systems and diminishing profitablity.
HR systems providers, benefits platforms and pension providers are contending for domination in the workplace, competing for employer and employee attention. Benefit consultants and pension providers have co-operated and increasingly competed, while the trend towards holistic well-being programmes has seen reward and benefit systems come to the fore. As pension schemes have become more commoditised (with old Defined Benefit plans disappearing and the advent of Master Trusts), employers have been more engaged in other aspects of benefits and employee engagement.
Now a new wave of ecosystems threatens to relegate pensions and their providers even further. Even as the 3Ps became more integrated, they remained a sideshow compared to the core business operations and IT estate. As resource management systems have become more sophisticated, with collaborative tools, using social media and thinking of employees as consumers, so HR systems and production systems have fused. This is not just in large enterprises but through new Cloud-based services that can cost-effectively reach SMEs. Examples include Conduent, HiBob and Peoplefirst. Through app stores and digital marketplaces, firms like these have curated an ecosystem of suppliers for clients and can add new components through APIs and web services with relative ease. New players could be not just a client’s HR system but their entire operating system.
Some pension providers have sought to develop their own ecosystems, but they risk becoming “below the API” players in future workplace markets. Appearing as one of several potential auto-enrolment providers in a third-party’s digital marketplace is either an astute hedging strategy for distribution, or evidence that the pension provider’s role has already receded. Other market developments, such as the Pension Dashboard and more Open Banking developments, add to the concerns of narrowly based pension providers, as pensions become more portable but also less profitable compared to older product versions.
Pension providers have much to do if they are to play a significant part in future workplaces. Even composite insurers that have evolved from own products, to partnering and platforms, could be relative bit-part players within an eco-system dominated by “Above the API” tech-led managing agents.
They will need to focus less on own tech and intermediaries and more on employees and their work environments. Other products and services create more interaction and engagement, so the scope of supply needs to be thought through, as well as what is own brand and what forms part of a partnering strategy. A technical architecture needs to support the desire to be part of a wide ecosystem, which will be dynamic and fluid, as customer demands change and personalisation increases. This will also demand a different culture and mindset that moves from a product and own platform focus to a more componentised marketplace. Survival of the fittest doesn’t mean being the best of your own breed – it means being the best adapted to a new order of ecosystems.
If you would like to learn more about WealthTech and FinTech please look at our video courses at FINTECHCircleInstitute.com