TechLife Exaxe Newsletter September 2012

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

Get in touch!

T: +353 (0) 1 2999100 E: info@exaxe.com W: www.exaxe.com

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you.

: @Exaxe

in: www.linkedin.com/company/exaxe

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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