Ecommerce and inspired marketing are key to profitability for stakeholder pension firms
15th February - The UK pensions industry is banking on ecommerce to survive the stakeholder pension revolution set to get underway in April.
More than 80% of existing pension providers expect to offer a stakeholder product within six months of the April launch date. Most of the rest plan to have entered the market within 12 months. But while the stakeholder pension opens up a potential market of 27 million people, it also exposes pension providers to serious risks, the biggest of which is financial.
The 1% cap imposed by the government on annual management charges puts profit margins under intense pressure. So much so that two-thirds of firms think it could take 10 years before stakeholder pensions show a profit.
These figures, from a survey conducted by Byline Research for ebusiness software provider iE, highlight the dilemma faced by the pension industry.
Jerry Mulle, ebusiness director, iE said: "The industry is damned if it does and damned if it doesn’t. Companies that fail to offer a stakeholder pension will lose customers, but the price of participating in the stakeholder market is painfully thin margins. Short of pulling off a marketing miracle, most companies will find it impossible to compensate for lost income by increasing their business volumes. That only really leaves one option, which is a radical downsizing of the cost base."
The report, Stakeholder pensions: built for ecommerce, concludes that only companies who manage to move part or all of their pensions portfolio to the internet will be viable in the long term.
Mulle said: "When the government settled on a 1% gross margin it virtually guaranteed that stakeholder pensions would become an ebusiness. Acquiring new customers and servicing their policies accounts for up to two-thirds of pension providers’ costs. Ecommerce can have a dramatic effect on costs in both areas. It wouldn’t be going too far to say that the only viable stakeholder pension businesses will be ebusinesses."
The report also acknowledges the importance of conventional marketing practices. With less money available to pension providers to fund brand awareness campaigns, the market leaders should be able to leverage existing brands to great effect. Worksite marketing, where the provider sells to employees at their place of work is another way to reduce distribution costs. Leading life and pension providers have also started doing deals with banks and other businesses with branch network and other established distribution channels.
Among the technical obstacles to ecommerce services cited by pension providers are system performance, integration problems, concern about the suitability of existing back-office systems and the cost of building e-commerce platforms. 90% of firms say they are web-enabling existing systems for stakeholder products. 10% plan to invest in new systems.
43% of respondents said they would consider outsourcing policy administration and servicing and/or call centre operations. 38% would be willing to hand over the running of IT systems and services if it proved more cost effective.
Mulle said: "Ecommerce is by no means guaranteed to save the bacon of pension providers, but the balance of probabilities favours those firms that find creative ways to reduce costs without neglecting marketing and without lowering standards of customer service. There are no safe bets for pension providers, but the smart money is on the companies that apply ebusiness thinking to the problem."
is a leading provider of integrated e-finance applications. It specializes in e-business financial systems for banking and insurance customers, who wish to use the Internet to win new business, improve customer service and reduce costs. All the financial applications integrate with existing customer relationship management, workflow and back office systems, particularly those that require IBM mainframe and call center integration. iE is an international leader in complex mainframe integrated and e-commerce tools. Since 1989, the company's integration products and advanced technology services have enabled clients particularly in financial services to deploy business-critical customer service applications. Since 1996 such systems have also been deployed via the Internet. From locations in Boston, MA, and London, England, the company distributes its products in 20 countries and has sold over 10,000 licenses worldwide. Founded in 1985, iE is a public company, quoted on the London Stock Exchange (AIM) as IEN.
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