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."