But whilst many are doom-mongering about the impending auto-enrolment capacity crunch (and admittedly in many cases with good cause), one part of the industry is really functioning rather well.
Back in 2005, a small group of pension administrators and fund providers got together to see if they could improve the investment process which at that time invariably involved people sending faxes. The result was a new technical standard (referred to as ‘ViaNova’) and because this is a free and open standard it allowed many technology companies to create some innovative but interoperable solutions that resulted in a step change in the efficiency of investment processes. And with the competition created between those companies the costs were kept to an absolute minimum.
This all ticked along quite well for the next few years with most trust based pensions falling into line with the new standard. Then auto enrolment kicked in and suddenly the volumes of trades started to increase, more than doubling in just the last year. The consequences of this were significant: nothing happened at all. One of the key benefits of automating a process is scalability: being able to cope with sudden increases in volumes with no additional people. And in this case it worked just as predicted.
The next two years of auto-enrolment tranches will see volumes of members rise considerably and volumes of employers rise spectacularly. The volumes of investment instructions will continue to rise but as investments are typically aggregated the rise will not be quite as dramatic as other areas of pension administration – perhaps another 2 or 3 times current volumes. For any administrator with an automated process this prospect will incite no more than a nonchalant shrug.
The bigger challenges now lie in employer facing processes such as payroll and then, with the advent of ‘Pot-Follows-Member’, pension transfers. The ViaNova initiative - with collaborative open standards and competitive but interoperable technology solutions – is a great model for how the industry should tackle these problems. The good news is that much work has already been done on open standards for payroll data and pension transfers so if you’re not involved already then I urge you to join in.