INSURERS UNDERESTIMATING PENSIONS SIMPLIFICATION IMPACT

Insurance industry advised to consider how to benefit from rules – not simply how best to comply with them

The lack of a cohesive, industry-wide strategy ahead of the introduction of new pension simplification regulations next year is threatening to undermine customer confidence, hinder firms’ ability to compete and cost the pensions industry up to £200 million.

The regulations will fundamentally alter the relationship between pensions providers and their clients when they come into force next April, giving customers greater freedom and choice in their pensions dealings.

As investors will now be able to incorporate a wider range of assets and funds into their pensions packages, tailoring them to suit their individual needs, insurers will have to be equally flexible in terms of the policies they offer, the advice they give to customers post-implementation and in their ability to co-operate with each other quickly and effectively.

Yet, while all insurers are focussing on compliance it seems that fewer are prepared for the impact the regulations will have on the way they interact with their customers and each other, Patrick Molineux, of global IT services company Computer Sciences Corporation (NYSE:CSC), has warned.

A global leader in financial IT, CSC works with more than 200 financial services companies worldwide and estimates that more than 50 percent of the UK’s life and pensions policies are managed using CSC systems.

CSC also estimates that some pensions providers are underestimating the overall cost and business impact on the new rules. The company puts the cost of the changes at around £200 million for the industry as a whole and in the region of £10m to £15m for the leading providers individually.

Mr Molineux, head of CSC’s life and pensions group, said: “Hard though it is, compliance will be the easy bit – making a success of the opportunities offered by the regulations will be the real challenge.

“Under the new regulations, distributors and investors will be active in requesting funds from other investment houses as well as other assets into their pension schemes. Customers will be more able to shift assets and they are already more sophisticated and knowledgeable about the pensions issue than in the past. Customers will no longer ask ‘who do I invest with?’ but ‘what do I invest in?’. That is a profound shift for the industry.

“Pensions providers will need to be able to answer that question. They will need to show the range of what they can offer. This is their main problem, but also their big opportunity: those that offer breadth will increase their market share amongst the critical mass affluent and high net worth customer segments.

"In the future, as pensions become more flexible, people will be more able to manage their pensions provision as part of their overall wealth management. Pensions have been ‘fire and forget’ but they will become much more active investments."

While the major pensions providers are all investing significantly in complying with the new regulations, greater investment is needed to ensure they are able to meet customers’ demand for information and transactional capability to manage the assets within their pension investments.

"Providers will need to work with their agents and IFAs to ensure they give the right advice to investors," added Mr Molineux. "B2B relationships will become more important as all insurers, distributors and investment houses need to communicate with each other automatically, flexibly and rapidly in order be able to respond to customers’ demand for active management of their pension assets."

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