A L i f e & Pe n s i o n s I n d u s t r y N e w s l e t t e r. September 2012
TechLife
intelligent solutions for life & pensions
Escaping the pensions strait-jacket // Tom Murray - Head of Product Strategy - Exaxe This article was first published in the Investment Life &
Having examined the reports, one fact leaped out. All
intelligent researchers stick so close to the original
true role be in the provision of pensions? Government
Pensions Moneyfacts, Issue 188.
of the reports, without fail, start with an assumption
formula, to try to solve the problem by improving a
does not have any money of its own, only that which
that pension provision is the responsibility of three
system that was clearly designed for a different era?
comes from the population itself by way of taxation. It
The pension system is creaking. Defined benefit schemes around the country are being shut down or
groups – the employee, the employer and the government. Therefore it requires a tripartite solution.
is clear that when we talk about government When you do stand back and try to examine the issue
contributions, we are fudging the fact that it is the
closed to new joiners as the increase in longevity
individual employees who are getting some of their
threatens to overwhelm company balance sheets with
own money back. They are effectively funding
liabilities that they can’t quantify with any degree of
themselves.
certainty. Defined contribution pensions are increasing but there is a large part of the population
Pretending otherwise is doing a disservice to the
that is not funding its retirement at all.
employees as it deludes them into thinking they are getting something for nothing – ‘free money’. There is
Over the last few years, we have been inundated with
no such thing as free money and when we allow
reports about how to fix the pension system to allow it
savers to think there is, we confuse them about the
to cope with the reality of an ageing population in the
whole process. We also make them think that
UK. These reports are all driven by the fact that, by
Government is involved, when it actually isn’t, feeding
2056, there will only be approximately 2 people of
the myth that the responsibility for future income lies
working age to support each pensioner, compared to
elsewhere.
approximately 4 in 2005. Outside of actual pension savings, government do It is clear that the current level of government support
have a role in providing a floor level pension for those
for pensioners cannot be sustained and all the reports
who haven’t saved or have lost their money. Nobody
focus on the necessity for citizens to take responsibility
wants to see the type of situation we are now
for their own future retirement income. It will not be
witnessing in Greece where pensioners are picking
possible for the government to provide for a retired
through the rubbish looking for food. By consensus,
population that is growing based on earnings from a
in our civilised society, we have all accepted that there
workforce that is shrinking. Therefore, the reports all
is a role for government in providing a basic minimum
agree, we must get the general public to realise that
income below which no citizen should fall below,
their future lifestyle is in their own hands and they
irrespective of how the citizen ended up in that
must defer some of today’s spending in order to have
situation. This is the role for taxpayers money,
the comfortable retirement lifestyle that survey after
generally supported on a ‘there but for the grace of
survey shows they expect.
God’ attitude by the public.
Given the scale of the problem and the general
If this minimum income is provided on a universal
consensus view that a disruptive solution is needed to
basis, it avoids the need for means-testing and
radically change our approach to pensions, you would
complex administration and in particular keeps the
expect a radical set of proposals based on a wide
system simple. Everyone can therefore understand
range of ideas. But here, curiously enough, you would
what he or she will be getting from the state when
be disappointed. There is a remarkable similarity to
they retire, and can plan forward from there. The
the proposals emanating from these reports, which
move to a flat-rate pension of £140 per week in 2016 is
generally are some mash-up of increasing pension
a welcome simplification of the system that would
qualifying ages, simplified low-cost products and various levels of nudges / compulsion.
make it much easier for people to plan their futures, if It is like there is a basic axiom that any individual’s
from basics, it is not obvious at all that the current
the government would stay out of the picture from that point.
retirement level involves government and employer
distribution of responsibilities should remain. To really
Axiom – Tripartite solution needed
just as much as it does involve the employee. No one
challenge the system, we must look at the different
Surprised by this, I set out to try and see how this
seems to be able to countenance going back to basics,
players to examine where their responsibilities really
remarkable consensus had come about. Could it be
looking at what we are trying to achieve with
lie and how they should fulfil them.
true that the solution that would work for a radically
pensions and moving forward from there. Player 1 – Government and pensions
different environment was just the current one with a few bells and whistles?
Why is this so? What makes so many educated,
Let’s start with the government – what should their
another licence sale with its latest client. This new deal encompasses the implementation of Exaxe’s flagship Illustrate Plus solution across the global insurer’s UK operations. Exaxe has already successfully commenced the implementation of its Channel Plus solution with the client, a licence deal which was agreed in February 2012. The implementation of Illustrate Plus will integrate seamlessly with Channel Plus and any existing legacy systems. The solution is scalable and will support the client company as it grows. Illustrate Plus is a highly flexible, web-based illustrations and quotations solution that supports new and existing business across all products for life, pensions, wealth management, group and individual business.
www.exaxe.com
The implementation of Illustrate Plus will support the
faster turnaround time on service requests, reduced
provision of web-enabled quotations and illustrations
errors and improved quality. Once implemented the
by its financial advisors, customer services staff or
client will experience reduced transaction costs and
indeed by the customer on a self-service basis.
increased process efficiencies by reducing manual
Illustrate Plus will also allow the client’s to dynamically
processes and duplicate data entry.
Product Development Application (PDA). This
Philip Naughton, Executive Director of Business
dramatically reduces the time to market for new
Development, commented “We are delighted to
products and new product variants.
further our relationship with this client by signing an additional product licence agreement. Work will
Illustrate Plus simplifies the implementation of
commence in June 2012 and Illustrate Plus will be
regulatory changes and is already RDR (Retail
fully implemented by November 2012. We expect our
Distribution Review) and FoFA (Future of Financial
client to experience remarkable benefits from the
Advisors) compliant.
implementation of our two most popular products and we look forward to working with them as they
include improved levels of customer service due to
Exaxe announces contract win for its Illustrate Plus Solution Keep Calm and Carry on... Working? Exaxe Solutions
modify, update or change its products through the
Benefits accruing to the client from Illustrate Plus will
IN THIS ISSUE Escaping the pensions strait-jacket
Exaxe announces contract win for its Illustrate Plus solution Exaxe is delighted to announce that it has secured
Continued on Page 2...
continue to grow.”
Risk using technology or risk falling behind Exaxe appoints UK Sales Director ‘Gotcha - DWP uses The Sun to dazzle workers Employers can’t cope with pension burden UK Budget 2012 – Good for pensions in the long run
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TechLife
intelligent solutions for life & pensions
Keep Calm and Carry On... Working? // Ralph Tucker - UK Sales Director - Exaxe The latest figures from the Office of National Statistics showing that the UK has experienced its third quarter of economic decline is bad news for those heading towards retirement. The ONS reported that GDP shrank by 0.7% in the second quarter of 2012, following falls of 0.3% and 0.4% in the previous two quarters. While they are forecasting positive growth in the third quarter of 2012, some of this will be based on a temporary boost from the staging of the Olympic Games in London. Overall, the picture painted is one of economic stagnation for the foreseeable future.
It is difficult to know what advice IFAs should give to
Variable annuities have some attraction allowing for
prospective retirees who walk through their doors
the upside of investment growth while protecting
for the next while. Advising people to take out a
against a collapse in the market, ever a possibility as
conventional annuity when rates are this low is a
the Eurozone turmoil continues to affect markets
bad idea, as people would be locking in their
worldwide and shows no sign of easing off. But many,
pension at a very low level. But what alternatives are
particularly those with smaller pension pots, may find
out there?
the risk level is too high for them.
A fixed annuity is one answer, postponing the
The current economic background leaves it very
purchase of the full annuity until the end of
difficult to find a secure solution without opting for
fixed-term in the hope that annuity rates will
the low-risk, very low return conventional annuity.
recover. However, that would have seemed a good
Maybe the best advice an IFA can give a potential
idea three years ago and yet rates are now much
retiree is to carry on working.
worse than they were then. There is no guarantee called for a brake to be applied to the austerity
This is going to reignite the debate about what the
economics and urged a loosening of economic policy
Bank of England should now be doing in order to get
in its recent report on the UK economy. It is going to
more cash into a depressed economy. The recent
be difficult for the BoE to resist the calls to pump even
extension of quantitative easing was a bare minimum;
more cash into the economy via gilt buying, ensuring
nobody felt it would give the economy the level of
that yields go even lower and the rates for annuities
stimulus required.
descend with them.
The voices calling for more dramatic intervention by
This will mean that anyone retiring over the next two
the BoE will grow louder, fuelled by this latest
years is going to get very poor value for the pension
evidence of sluggish economic activity. The IMF,
pots that they have worked so hard to accumulate if
normally a bastion of economic prudence, has already
they buy a conventional annuity.
that they will be much better in the near future and possibly they could be much worse.
Exaxe Solutions
Drawdown may seem another obvious alternative but the success of drawdown products lies in the
is a web-based illustrations and quotations system
ability to grow the investment while drawing down
that supports new and existing business across all
from it and this level of risk is not suitable for
products for life, pensions, wealth management,
everyone. Also, the government’s recent restriction
group and individual business.
of the amount that can be taken in payment from 120% to 100% of the GAD rate is a significant restriction. Who can tell it won’t happen again?
is a web-based automated solution that supports agency and compensation management for the life,
Escaping the pensions strait-jacket (contd.) // Tom Murray - Head of Product Strategy - Exaxe
pensions and wealth management sectors across all distribution channels.
based and the idea that multiple firms should feel duty
desperately do, then we need to lay the facts before
bound to provide for the worker in his or her old age is
them and avoid any unnecessary complications.
is a web-based policy administration solution for the
untenable.
The employers’ role is primarily a facilitative role in the
pensions, annuities and wealth management sectors,
pensions industry to protect savers, in education to
same way that their role in the collection of taxation is
supporting wealth decumulation and at-retirement
make people fully aware of the need to save, and
More ‘free money’
facilitative – to allow for deduction direct from salary.
products.
possibly in bringing in compulsion to ensure that
Given the fact that they have no responsibility for the
everyone who can save is saving. But direct contribu-
pension of the employee and the fact that defined
So far, so good
tions via tax relief make no sense as they just confuse
benefit schemes are a thing of the past, it is hard to see
Given the above, why does no one want to even
is a web-based policy administration solution for the
what the value is to the employee of employer
explore the possibility of a simple straightforward
life, pensions, and wealth management sectors,
contributing to defined contribution schemes. A 3%
solution whereby the government’s role is clearly
supporting wealth accumulation and investment
Player 2 – Employers and pensions
employer contribution appears on the surface to mean
identifiable as the provider of a pension floor, the
products.
When we look at the role of employers, the justifica-
that the employee is getting more ‘free money’. Of
employers’ role is purely facilitative and, as a result, it
tion for their involvement becomes harder to define.
course that free money is just as unreal as the
becomes clear to employees that any increase above a
Contact Us
In the past, employers could easily fund a system that
government ‘free money’.
bare minimum in their retirement lifestyle would have
Want to find out more about Exaxe solutions?
to be funded by themselves?
Contact us today: info@exaxe.com or
(Continued from Page 1)...
Further government roles lie in the regulation of the
the issue.
provided for employees for their entire, albeit short, retirement. Many employers provided defined benefit
If it were true, the unit cost of labour would rise by 3%
+353(0)12999100.
systems that worked fine as the workforce expanded.
compared to firms who weren’t offering the contribu-
If the goal is educating the population to the realities
Now that the national workforce is shrinking, it is clear
tion. Even when the government, as in the case of
of the pension world, it would be a far better
that the era of defined benefit schemes is over. Too
auto enrolment, mandates the employer contribution
approach than the current tweaking of a tripartite that
many companies are devoting far too much of their
it is clear that financial directors will be working to
seems to give responsibilities to everyone. And, as we
time wrestling with liabilities from their pension
restore unit labour costs as rapidly as possible.
all know, when everyone is responsible for a problem, then no one actually is.
scheme and not focusing on their business. In fact, as we all know, the process will follow that in Besides that, the original rationale for these schemes
Australia. When they introduced compulsory
Sauce for the goose
has now changed. In times of full employment, they
superannuation with the contributions paid by
So why not consider it? Well, up to now this article has
had some use in attracting and retaining staff. Now,
employers, salaries stopped rising until the enforced
been considering private sector pensions. But if we
there is a danger that the schemes that are left are
pension contribution was absorbed. This is what is
take the employer out of the pension’s equation,
actually stifling industry. The remaining schemes
expected to happen in the UK. After all, surely no one
where does that leave public sector pensions? What
reduce the natural cross-pollination between large
can believe that the government were planning to
becomes of the un-funded defined-benefit pensions
and small companies and between public and private
make UK workers 3% less competitive overnight?
underwritten by the taxpayer? They disappear in one fell swoop.
sectors, resulting in a scenario where people, who would have left a company in the natural course of
Player 3 – Employee and pensions
things, end up staying on purely because of the
Essentially, by dint of reducing wages, the employee is
Public sector employees would have the benefit of the
pension. No firm will do well if employees are staying
ultimately going to pay for the employers’ contribution
government provided pension floor and then, like
for the wrong reason and the overall economy will
and by general taxation for the government’s
everyone else in society, what they had to spend in
suffer if pension schemes are acting as inhibitors to
contribution.
retirement would depend upon the spending
Could this be the real reason that nobody wants to challenge the cosy consensus that pensions axiomatically are the problem of governments and employers as well as the individual? Is it significant that proposals for reform come from either the public sector or those with a private sector defined benefit background, or from independent consultants whose main business opportunites come from those same people? The current cosy consensus needs to be challenged. Government and employer involvement need to be justified. We cannot keep saying we need to transfer risk and responsibility and then let people think that they are only part of the solution. Infantilising grown adults by trying to make them think pension saving can be easy is not the way forward.
sacrifices they made during their working life.
the free flow of skills and ideas. Does it matter that we’re not being absolutely upfront
Instead, honesty is what they require along with
This reality has changed with the average employee
about this with the employee? I think it does. There
This would make public sector employees the largest
expected to have between seven and ten different
has been enough obfuscation around the whole area
losers in the whole reform process. This is natural
employments in their working life. Thus the link
of pensions over the years and this has contributed to
because currently they are getting far more out of the
between employer and employee has become a far
people’s lack of confidence in them. If we need people
system than they put in. Any move to make the
more utilitarian one. The relationship is contract-
to take responsibility for their own pensions, and we
system more equitable has to be at their expense.
www.exaxe.com
Quis custodiet ipsos custodes?
encouragement and support. There is a huge danger that it is the pension experts that are the biggest road-block to the kind of fundamental reform the pension industry needs going forward.
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TechLife
intelligent solutions for life & pensions
Risk using technology or risk falling behind // Tom Murray - Head of Product Strategy - Exaxe This article was first published in the Actuarial Post,
engage with technology partners to provide the
Issue 13.
expertise levels across the wide range of technologies involved, as this expertise will not be available
Technology in Society
in-house.
The nature of society has changed dramatically in the last two decades. The arrival of the Internet was
Use of cloud-based technologies, where a company
primarily a techie thing at the start, focused on
can essentially rent software and combine various
computer geeks. The music and porn industries were
cloud-based services to produce new products and
the next to follow but over the first decade of the new
services of their own is an important part of the
century all business moved rapidly to adopt the new
solution. Similarly the move of technology problems
medium. This was less driven by the potential it
to the experts is essential and allows the life and
offered than by the awareness that consumers had
pension company to focus on what it does best – the
embraced the Internet very quickly. Unusually for
creation of life and pension products and services.
technological changes, this one has been a shift led by demand.
By using external technology partners and cloudbased software services the security issues can be
Technology usage is now ubiquitous amongst all
given over to those whose entire business is based on
sectors of society, including the elderly, and has
providing secure services out over the Internet to
spread beyond PCs to smartphones and tablets. As a result, the general population have far higher
every platform type. This allows companies to insist to bear in mind that within two years of the launch
technologically savvy offering. Although the risk of
on the highest standards in secure data storage and
expectations of the service levels that they should
of the original Apple iPad, fifty per cent of all adults
cyber-hackers can be over-rated, the danger for any
transmission from partners who have the expertise to
receive from all businesses. They demand access to
in the UK had a tablet. This shows how easy it is for
company of a major security breach, in terms of
supply it
their information and the ability to buy products and
technology to dramatically change the marketplace
their reputation, is one that keeps directors awake at
alter their products at a time and place that suits them
and evolution theory shows that those who can’t
night.
and on their own platform of choice: PC, laptop,
adapt, don’t survive.
smartphone or tablet.
Embracing the cloud also ensures a lower cost of innovation, with the ability to try small rollouts
Another significant danger is that the use of newer
without the full technical implementation that would be required for an in-house equivalent.
Technology risks
technologies dramatically increases the cost of
The dilemma that faces the life and pensions
However, there are significant risks involved in
trying something new. Expertise is hard to get and
industry
moving systems and processes out over the Internet
very expensive. Advances mean that today’s expert
Hobson’s choice
In the financial services sector, the banks and the
to a variety of consumer devices.
can be behind the curve within six months. This can
I said that our industry faced a dilemma but it is really
make it very difficult to up-skill an IT department to
Hobson’s choice; adapt to technology and leverage it
The first and most important one is security. The
the level where they can undertake projects to
to play a part in modern life or do nothing and be
technology. On the other hand, the life and pensions
ability to secure the large amounts of personal data
provide these kinds of dynamic services.
overtaken by newer entrants to the market who will
sector, whilst automating back office work consider-
that are involved in the sales and administration of
general insurance companies have been quick to grasp the opportunities afforded by newer user-facing
ably, has been slower to embrace the changes in the market in order to sell and service their products directly to their customers.
be better suited to today’s consumer. It is easy to say
life and pension products is a vital component in the
Overcoming the technology risks
that ‘our industry is different’ but a glance across the
credibility of any operator in the sector and cannot
It is clear that businesses must embrace new
business landscape shows the wreckage of many firms
be risked lightly.
technology. Given that there is no real choice, how
that thought they didn’t need to innovate, until a
can life and pension companies mitigate the risks
more nimble competitor sped past them and used
associated with mobile technologies?
new technologies to redefine the market, leaving
The life and pensions sector has to change. Compa-
Risking of data security either by accident or
nies have a choice to make, they need to innovate or
exposure to malignant hackers is anathema to life
them out in the cold. Never think it can’t happen to
risk being left behind by a disruptive technological
and pension organisations and it has to be the
The most obvious mitigation, which has been
shift that rapidly changes their environment. We need
number one priority when moving to a more
adopted by many companies in other sectors, is to
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Exaxe appoints UK Sales Director Exaxe are delighted to announce the appointment of Ralph Tucker as its UK Sales Director. The move comes following our announcement last year of its plans to expand the business in the UK, Ireland, Canada and the Nordic regions. One year into its two year recruitment drive plan, Exaxe has increased its headcount by over 20% and continues to grow steadily. Ralph has been brought on board to continue driving this expansion by generating growth in the UK life, pensions and wealth management sector. He is responsible for developing go-to-market and sales strategies, creating new business opportunities and
www.exaxe.com
providing greater support for the existing clients in
Ralph Tucker says:
the UK.
“I’m delighted to be joining Exaxe at such a pivotal stage in the company’s development. I am confident
Philip Naughton, Executive Director Business
that I can support its continued growth, in line with
Development at Exaxe says:
the expansion plans, to develop the business and its
“Ralph brings over 18 years’ industry experience to
propositions that will benefit our customers in these
Exaxe, which he gained in the financial services, BPO
challenging economic times.”
and technology vendor industries. Ralph has joined Exaxe from Mastek UK where he worked as Business
Naughton continues:
Development Director and was responsible for
“Ralph’s knowledge of existing distribution
setting the product and sales strategy. Prior to this,
practices, trends and future models combined with
Ralph worked in large scale organisations, including
a deep understanding of life companies’operational
Capita, Vertex Group and Zurich Group in a variety of
practices and products will be a great addition to
strategy and provides the platform for our planned
senior roles including Head of Propositions, Head of
Exaxe and its clients. Our appointment of Ralph
future growth and expansion into new markets. We
Product Management and Head of IT Promotions.
coincides nicely with our new business
look forward to Ralph’s contribution to our continued growth.”
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