One per cent charge limit in Government-backed pension scheme
forces insurers online to cut costs
Nick Huber
Insurance companies are racing against time to introduce online
pensions to avoid crippling running costs when Government-backed
supplementary stakeholder pensions are introduced.
From next April pensions companies will not be able to charge
customers more than 1% of the stakeholder fund's total value,
making traditional means of delivery untenable, experts warned.
IT managers face an uphill struggle attempting to link existing
insurance systems with the Web before the Government's deadline as
the Internet is emerging as an essential vehicle for delivering
low-cost stakeholder pensions.
Currently before parliament, stakeholder pensions are at the
heart of the Government's long-term shake-up for UK pensions.
Contributions start from just £20 a month. But IT managers in the
sector have already admitted that they face a formidable challenge
in integrating the necessary Web sites with legacy systems and
finding the right e-commerce skills to push forward Web
projects.
Malcolm Whitehouse, head of IT strategy for Royal and Sun
Alliance Life, which is developing a Web-enabled stakeholder
pension, said, "There are certainly challenges for all of the UK
life and pensions companies in enabling some of the older back
office systems to be accessible. I think we are all struggling with
this at the moment."
Insurance companies developing Web-based pensions will have to
recruit more IT staff for Web projects, train existing staff in
e-commerce skills and partner with third party supplies, Whitehouse
added. This will mean working with niche e-commerce vendors as well
as traditional IT giants such as IBM and Oracle.
Adrian Boulding, pension strategy director for Legal and
General, (L&G) warned that insurance companies could not afford
to ignore the future market for Web-based stakeholder pensions.
"If pension providers don't wake up to the Internet age they
will be left seriously behind," he said. "L&G is developing a
Web-enabled stakeholder pension option to be ready before next
April."
Laurent Lachal, an analyst at consultancy Ovum, warned that
insurance companies could struggle to develop real-time Web sites
for stakeholder pension applications if they have ageing back
office systems.
"If they have a problem getting data out of the back office they
can develop a datawarehouse as a kind of cache. This could provide
real-time information for people accessing the Web site," he
said.
Pension chiefs estimate that the majority of stakeholder
pensions will operate over the Internet by 2005.
Alexander Drobvik, group vice president of e-business for
GartnerGroup, warned that the main headache posed by Internet-based
stakeholder pensions was also a business issue. "If they deal
through Web sites and sell through intermediaries, making any
profit will be tough," he said. "Insurance companies are scared of
a backlash from agents. [Agents] are saying they won't handle their
policies because they are selling direct."