advantages and disadvantages of use of the internet for ......kevin wesbroom joined hewitt...

Advantages and disadvantagesof use of the internet foroccupational pension schemes:An industry surveyReceived. 30th July, 2004

Kevin Wesbroomjoined Hewitt Associates from Oxford University in 1975, with a first-class degree in mathematics and qualified as an actuaryin 1978 He has been with the organisation for his entire working life, enjoying a wide variety of roles including clientconsulting and the review of pension plans and thought leadership in the pensions area. He has a particular interest in theimpact of changing demographic shifts

Abstract This paper considers the development of the internet in relation tooccupational pension schemes, the opportunities offered by the use of internettechnologies, as well as the barriers to the growth of the use of the internet. A previouspaper {Pensions Vol. 9, No. 4, pp. 348-364) set out the results of a survey of the use ofthe internet by UK company pension schemes in early 2003. The findings of that surveyare incorporated here, together with direct quotations taken from survey responses,suitably anonymised.

Keywords: internet; pensions; communications; defined contribution (DC);defined benefit (DB); final salary; website; personalisation; self service

Kevin WesbroomHewitt Associates6 More London Place,London SE1 2DA, UK.

Tel +44 (0)20 7939 4346,Fax +44 (0)20 7939 4316,e-mail kevin.wesbroom®hewittbaconwoodrow com

Generic advantages of aninternet presenceThe general advantages of an internetpresence for any industry are usefullysummarised as the 'Six CV in Bocij etal,] namely, cost reduction, capability,competitive advantage, communicationimprovement, control and customerservice improvement. Table 1 belowsummarises their analysis and maps thethemes onto the pensions space, withsupporting comments from responses tothe Pensions survey.

Pension managers' viewsFigure 1 below sets out the replies frompension managers to the question: "What

do you see as being the biggestadvantages of internet-basedcommunication and administration in thepensions area?' with multiple replies (upto three) permitted. The feature whichcomes through most strongly is theability to improve the service offered tomembers — both in terms of the qualityof information provided and its personalrelevance, and also the opportunity todeliver it to members at a time and in amanner that suits their circumstances.

Perhaps rather too honestly, one replysaid of the advantages of the internet; 'inits current form none — but it just looksgood!' (manufacturer). Keeping up withthe Joneses is never a strong businesscase, but a verv human one.

152 Pensions Vol. 10, 2, 152-166 © Henry Stewart Publications 1478-5315 (2005)

Use of the internet for occupational pension schemes

Table 1: Advantages of an internet presence

Feature Potential applications to pensions

Cost reduction The greatest savings in pensions come from the improved automation of routineservices, and the drive towards self service approaches. Self service can meaneither service by trustees and companies or by members themselves carrying outroutine transactions or modifications to their personal data via the web; '[Internet]will reduce need for repetitive admin tasks — such as change of address — to freetime for value added work' (technology developer).

Capability The internet enables a broader range of interactions with pension scheme members,including opportunities to contact, communicate and transact outside of normaloffice hours; 'A dedicated website provides an excellent communication tool forpensions, since information can be provided and obtained quickly and convenientlyin a way and time that suits the member" (retailer). This can also mean, forexample, that a multi-national employer can offer consistency of service response toits global workforce.

Competitive Rarely a consideration in company pension schemes, but one would hope that aadvantage compelling internet presence would support an employer's attempts at developing

their own 'employment brand'. The most dramatic illustration of this feature hasbeen the decline in the number of players in the commercial Stakeholder marketwhere the stakes were high (in the form of substantial investment to automateprocesses by several orders of magnitude) and only those prepared to commitsignificantly will have any hope of recouping their investment and thereby gaincompetitive advantage.

Communication The ability to enhance the quality and quantity of communication material offered toimprovement members (and to trustees) was discussed significantly in the earlier article, and is

considered further below.Control In the sense of generic advantages of the internet, this refers to increased control

by consumers, for example in relation to access to their personal information suchas banking data. Control of data access appears far more often on the negativeside of comments about the internet for pensions at this stage; 'Ensuring security ofdata will deter investment in the administrative aspects [of the Internet]' (retailer).

Customer service There is little doubt that the internet extends the opportunities for members to learnimprovement about pensions, and transact their pensions business, outside of the workplace,

assuming they can be persuaded to take the time to find out; 'With the correctdemographics of members and employees, Internet based communication would bea fantastic step forward, particularly as regards accessibility' (aerospace engineer).

Service to membersIt is clear that pension managers have astrong desire to increase and improve therange of interactions they have with theirmembers, in an effort to improve theunderstanding of pensions, and they seethe internet as one of the key tools theycan use in this mission. The availabilityof the internet outside of traditionaloffice hours and the working day of thepension manager is a key advantage; theMartini principle (anytime, anyplace,anywhere) of web access can move frombeing a fanciful notion to an everydaypart of life. We can sometimes forget justhow rapidly technologies can becomepervasive — think of mobile phones, orhome banking or internet shopping via

Amazon and the likes. Just seven yearsago. only 10 per cent of the adultpopulation used the internet — 57 percent do so now. Pensions may takelonger to join the list of informationroutinely accessed via the web, but asexpectations change, then occupationalschemes will need to invest to stay upwith the technology demands, oroutsource or buy in these services.

Communication and educationOne of the classic themes of the internetis that this medium does not force oneto compromise between what Evans andWurster2 call 'richness and reach'.Richness of information refers to the

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81%

42%

42%

J 2%

40%

9%

1%

60%

11%

Enhanced service to members

More effective understanding by members

More targeted communication

Greater willingness to save for retirement

Reduced costs of administration

Better integration with other employee benefits

Ability to administer wider range of benefits

Service at a time and manner that suits members

Other

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Source: All completed responses to Pensions survey

Figure 1: Biggest advantages of the internet

quality, relevance, and personalisation ofthat information, whereas reach refers tothe size of the potential target audiencewe can connect to. Traditionalcommunication methods either selectquality — via personal conversations orpresentations — or quantity, in the formof awareness campaigns, posters, etc. Theability of the internet to offer 'masscustomisation' — in other words toreach a large group of people, butdeliver information that is specific totheir circumstances — enables us not tocompromise on richness or reach. Thesuccess of the different communicationmechanisms will obviously vary fromscheme to scheme depending on themembership profile and internet accessfor all categories of members, but theprinciples are illustrated in Figure 2below.

Communication and pensions havealways gone hand in hand — because ofresistance to the basic concept. The veryproduct itself is intangible, and deferred along way into the future. People do notwant to think about pensions because asone communicator said 'it's to do withgetting old and having less money'. Andwe start from a relatively poorknowledge base; as the Department forWork and Pensions (DWP)3 state:'evidence suggests that most people havea limited understanding and awareness ofpensions and the pension system'.Providing information about pensions —personal projections of emerging levels ofbenefit from a DC plan delivered via theweb — may generate a sense of urgencyand immediacy that prompts people totake action; procrastination is one of thegreat enemies of retirement savings.



Richness Face to facebriefings

Line mangersand HR

Pensionsroadshows

Pensionsintranet

Interactivemodellers

Pensionsinternet

presence

E-mail

Booklet

Newsletters andpopular reports

. . ' • • " * . • • ' ' ' • '

Posters Reach

Source: Based on Evans and Wurster2

Figure 2: Richness and reach in pension communications

Figure 2 above considerscommunications with the members ofthe plan, typically from the employer orthe trustees. There are many partiesinvolved in pensions all of whom mayhave their own communication agendas.The employer wants to communicate thevalue of the benefit he is providing, tomake sure members appreciate it fully,and that they are making the bestchoices amongst those available. Theprovider — eg insurer — wants tomaximise sales. The government wantsto encourage people to save more tomove them away from state provision.Each of these aspects of communicationcan be facilitated by internettechnologies.

Government communicationThe DWP Green Paper3 is full of ideasand initiatives around communications,with a view to getting people to pay

more towards their retirement; 'ifinformed and empowered, many wouldchoose to save more than they do'. Theypropose a significant emphasis ontechnological solutions includingpersonalised interventions to maximiseeffectiveness, a range of communicationchannels (written material, websites, callcentre support, and even interactivedigital television) and an interactiveretirement planner. The latter is anambitious project that will offerprojections of combined benefits fromthe state and — in its widestdevelopment — all private sectorpensions. It is a very bold visionaryproject, only possible via the internet andstandard information exchanges, but thekey building blocks are in place.

Manager to managerChat rooms have been a feature ofinternet communities in most areas of

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endeavour, and so it should not be asurprise that a chat room for managershas emerged in the pension community.The online communitywww.pensionwebcommunity.com waslaunched by a specialist pensionscommunication firm, with the intentionof offering an online location wherepension managers could meet together todiscuss issues that concern them, withoutpayment and overt selling. Whether theservice remains free, or becomes asubscription service longer term, is aninteresting question — indeed thewebsite www.endoffree.com exists simplyto catalogue the trend away from thedays when the web stood for freeinformation!

Pension regulators — the FSAThe Financial Services Authority (FSA)saw from early days the potential usesof the internet and the twin themes ofeducation/information andefficiency/administration. The Chairmanof their e-commerce workstrand said:'We are looking, for example, to tapthe potential the internet offers in thearea of consumer education and howto make good use of the newtechnologies to improve the efficiencyand economy of our regulation'.4 TheFSA were amongst the early adoptersof technology to provide education andinformation for consumers, includingpension consumers. They launchedcomparative tables on the web — withpensions featuring prominently — asone of the 'ways of applying newtechnology to help make an informed,online choice, although with theexpectation that the actual transactionwill be effected using face to face(F2F) methods. The FSA and theAssociation of British Insurers (ABI)also launched a very useful — if notvery appealing — pension projection

model that can be found atwww.pensioncalculator.org.uk.

Pension regulators — OPRAAs the principal pensions regulator (atleast until it is replaced by the newregulator under the Pensions Act 2004)OPRA sponsors a significant website forits own services, as well as offeringguidance for pension professionals on theuse of the internet. As yet they have notlauncheci what would be, one of themost valuable features for a website —an online tracing service to helpindividuals locate the various pieces ofdeferred, frozen or personal pensionsthey have accumulated over their career— a 'Pensions Reunited' website ineffect! Whether this emerges as part ofthe DWP modeller referred to aboveremains to be seen.

Communication — effectivenessIt is worthwhile asking whether theefforts for communicating with members,via the internet or otherwise, are actuallypaying off, in terms of greaterunderstanding or increased levels ofsavings. To date the evidence appears tobe that there is still a long way to go. Ina survey of the DC and additionalvoluntary contribution (AVC)marketplace, Hewitt Bacon & Woodrow3

considered the methods used forcommunicating with members, illustratedin Figure 3 below.

It is clear that a vast array ofcommunication techniques are used, withinternet and intranet methods showingsignificantly increased rates compared, forexample, with the figures in surveys justthree years earlier. But one of the mosttelling outcomes of this survey camefrom asking pension managers how muchof the basic messages around DC hadbeen taken on board by members. A



In-house scheme

literature

Literature from

external providers

Presentations to staff

Projection of benefits

from DC provider

Member helpline from

DC provider

Internet/intranet site

in-house

Internet site from DC

provider

Interactive financial

modeller

81

62

51

46

44

38

35

14

0 10 20 30 40 50

%

60 70 80 90 100

Source: Hewitt Bacon & Woodrow DC/AVC survey 20045

Figure 3: DC communication methods

frightening 97 per cent said they felt thatDC members did not have a clearunderstanding of the amount needed tosave for their retirement. Even morealarmingly, 78 per cent said that DCmembers did not understand they werecarrying the risks in their plans, ratherthan the employer. It is clear that weneed to continue to press home somevery basic messages about saving forretirement — risks, how much to saveand where to invest. Interactivemodelling programs delivered via theweb can play a key role in this, and canbecome increasingly sophisticated to helpmake messages more effective.Segmentation techniques borrowed frommarketing disciplines can help guideindividuals who are accessing a websiteto the information that is most relevantto them, and most likely to generate thedesired response.

AdministrationIt is clear from Figure 1 that pensionmanagers see the biggest opportunitiesfrom the internet as enhancedcommunication and interaction withmembers. Reducing the cost ofadministration only ranked fifth on theirlist of priorities. It is true that at presentthe costs of administration of final salaryschemes are dwarfed by the generalfinancial difficulties these schemes face;over time however, the desire for greaterefficiencies, particularly among closedschemes, will predominate. The facilitiesoffered to members by commercialproviders in many cases are ahead ofthose in the corporate sector, wherethere has been arguably less of animperative to cut costs and automate.More recent evidence suggest that thecombination of the move to DC and theappalling funding levels of final salary

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27 -

25

1994 1995 1996 1997

Source: Capita Hartshead 2003 survey6

Figure 4: Cost of in-house administration

~i 1 i 1 r

1998 1999 2000 2001 2002 2003

schemes (and consequential increases incosts) has led to more attention oncost-driven outsourcing in the selfadministered arena. It is in thecommercial interests of the outsourcersto apply the same logic as insurers todevelop self service approaches, andhighly automated solutions. Otherwisecosts for in-house administration seem tocontinue to rise inexorably, with littlesigns of payback from any investment intechnology and automation, as Figure 4shows.

There is a marked contrast betweenthe approaches generally taken to dateamongst in-house self administered finalsalary schemes and the commercial DCmarketplace. For anybody working in thepensions industry, the conventionalwisdom for many years was that theinsurance sector had a reputation forpoor quality systems and low standardsfor pension administration. Stakeholderchanged all that; the imposition of the

1 per cent cap on charges led to amassive investment in web-based systemsand re-engineering of business processesto be able to make money in thisenvironment. This investment inautomation means that the insured (andoutsourced) providers have the potentialto lead the in-house self-administeredsector. Commercial providers do nothave the luxury of heavy levels ofmanual intervention to compensate forpoor processes and must drive for evermore automated approaches, such asstraight-through processing. ITcommentators Forrester Research7 areconvinced that providers must drivestraight-through processing throughoutthe entire value chain, eliminating paperbased processes and other inefficiencieslike re-keying of data betweendistributors and manufacturers.

Certainly the attraction of usinginternet-based administration systems hasbeen recognised in the broader financial



Table 2: Comparative costs of administration

Agent/IFACall centreInternet

$19$8$0.45

Source: Cornall ef al: Annual cost of administrationof Personal Lines Insurance policy

services sector, since the almost legendaryanalysis produced by consultants Booz,Allen & Hamilton on comparative costsof different banking channels. A papercalled e-actuaries8 looks at the cost ofadministration of US personal lineinsurance (our closest proxy for pensions)summarised in Table 2 above. As everthere appear to be massive potentialsavings from web systems. Even ifpensions products and processes can besimplified for delivery via the web,however, capturing the gains offered bynew internet systems may prove moredifficult — if not impossible — wherealternative distribution channels are alsooffered. Many commercial pensionproviders in the UK have found this totheir cost, as systems have proliferatedwith new 'clean' internet systems havingto integrate with a variety of legacysystems. To date we have seen nosignificant new entrants to the pensionsmarketplace who are operating on a'pure play' internet-only basis,comparable to the likes of egg in thepersonal finance space. Perhaps thechanges offered by the Inland Revenuesimplification of pensions taxation9 willfinally tempt some new players in thepensions arena?

Even with the news of an increase inthe price cap on Stakeholder productsfrom 1 per cent to 1.5 per cent (for thefirst ten years), the prognosis forcommercial pension providers in the UKis not good. Despite their substantialinvestment in technology and internetsolutions, it is not obvious that there willbe room for all of them to make money.Brian Hague, a third-party evaluator10

calls their investment an 'act of faith' inmany cases, and sees them as grasping atinternet technologies as offering somesort of hope of ever being able to makemoney under stakeholders' limitedcharges. When asked how long it wouldbe before these providers saw a pay backon the significant amounts invested innew systems he said, 'realistically, notmany of them are going to make moneyever'. The raising of the cap onstakeholder products to 1.5 per cent maygive hope that some return is seen thisside of infinity! But the drive to the •webmay be the saviour of those who chooseto play in this market. As Buchan" putsit 'Hitherto in the pensions industry, theInternet has been seen as a usefulgimmick at best, but the new[stakeholder] regime has acceleratedInternet based administration facilities tothe status of being a pre-requisite'.

Barriers to growthPension managers gave some fairlyconsistent messages about whyexponential internet growth is unlikely.Responses to the question 'What do yousee as the biggest deterrents to the growthof the use of the Internet in pensions?' aresummarised in Figure 5. Once againmultiple responses were permitted.

The 40 per cent 'Other' responsescovered a number of areas includingtrust, security concerns, legal issues,accessibility by staff, comprehension bystaff and cost.

B2C or F2F?The overwhelming issue that the internetcannot overcome in the pensions area isthe need for face to face explanations.Many managers chose to makecomments to this effect; 'most peopleprefer to speak to some one directly'(utility). 'People want to have things


Wesbroom

Pensions are too

complicated to do

over the web

Lack of

understanding of the

internet

People will still want

face to face

explanations

Awaiting easier, more

accessible

technology

Other

0% 10% 20% 30% 40%

Source: All completed responses to the Pensions survey (101)

Figure 5: Biggest deterrents to the growth of the internet

50% 60% 70% 80%

explained and talk to a person' (retailer).'Members still prefer to talk to a realperson about their benefits' (leisure).'The majority of membership will alwaysprefer face to face communication'(bank). The percentage citing this as thekey deterrent was noticeably loweramongst DC schemes — perhaps a casethat they have seen what can be done,or of a greater neccessity? Manyrespondents to the Pensions survey feltthat internet communication was a poorsecond to the 'real thing' ie face to facecommunication. Perhaps they believe thatthe message is less important than themedium. In their book 'e-pensions'1" theauthors cite that in personalcommunication, the significant factors indelivering a message are accounted forby 55 per cent visual features (ie bodylanguage) 38 per cent aural issues (ie the

way we say things) and only 7 per centfor the message itself. They concludethat a pensions website has tocompensate for the 93 per cent ofcommunication that arises from the lackof human interaction. Apart from thepracticalities or impossibilities of face toface communication for a majoremployer with many thousands ofemployees on multiple sites, this alsomisses a potentially important point.Some people might prefer the internet astheir means of learning. Well-constructedmaterial 'allows people to take ininformation at their own pace'(pharmaceuticals) and can offer the abilityto learn in a style that suits people, whomay be embarrassed by asking stupidquestions in open forum. Fowler13

encapsulates this excellently: 'the notionthat a remote relationship can actually be

160 Pensions Vol. 10, 2, 152-166 Henry Stewart Publications 1478-5315 (2005)


Table 3: Product value proposition for online adoption

Drivers

Cost savingsConvenienceLack of complexityEnhanced controlChoiceConclusion

Current account

/ / / /• / //Value propositionneeds to beenhanced

Motor insurance

/ /

/ / • /• // • /Likely to have goodearly online adoption

Broking

/ / / •/ • /• / // / / // / /Killer onlineapplication

Pensions

/ •/ /// // / /Unlikely to belarge onlineunless madesimpler

intimate is not the only irony implicit inthe potential of the Web'. Of course theleading thinkers do not see it as a choicebetween face to face or internetcommunication: 'It [the internet] won'tever replace face to face, but I would saywhy not have face to facecommunications on the internet?"(communication specialist). And othersurvey responses see internet approachesas just one of an array of measures thatcompanies will use to get their pensionmessages across to members: 'the internetis only a small part of goodcommunication that will always remainmulti-layered' (retailer).

ComplexityEven if the reality is that commercialpension products are now simpler, thereis no doubt that the fear amongstpotential purchasers — or members ofcompany scheme — is that they are stillcomplicated, and they will not enjoy theexperience. In relation to commercialsales, JP Morgan14 see the adoption ofonline financial services generally as anequation of the form:

Adoption = Function (Cost/convenience, complexity,choice, control)

They see pensions as scoring ratherpoorly on this basis, compared withother financial services products:

Complexity — or more likely fear ofcomplexity — is still a major deterrentto transacting pensions business via theweb. Like other complex financialproducts, however, buyers areincreasingly comfortable at using theinternet as a source of information andadvice, but then using a differentapproach — typically face to face — forthe actual transaction. Two-thirds of USmortgage buyers research online, butonly a handful will transact. Thisapproach seems to be a recurring themeamongst pension managers who see theinternet as a helpful source ofinformation for members but not asubstitute for the real thing; 'TheInternet is a useful tool but, in my view,cannot replace face to facecommunication' (motor manufacturer).

AccessSeveral replies commented that theirmembers lacked access to the interneteither at work or at home. Perhaps notsurprisingly, this was an issue for thosewith a large proportion of manualemployees; 'we must not be drawn intothe illusion that most people have accessto the web: in our industry many of ourstaff are at best semi-skilled eg warehouseoperatives and there is no access at workand only slowly growing access at home'(manufacturer). Several pointed out thedisparity between different sectors, 'if Iwere a bank I would probably use the

© Henry Stewart Publications 1478-5315 (2005) Vol. 10, 2, 152-166 Pensions 161

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internet for communication but a highpercentage of my members are manualemployees with no access at work to acomputer' (manufacturer). Some felt thattheir employer was not being creativeenough to facilitate web access, 'thereshould be willingness from employers toallow employees to access the internetfor specified purposes (eg pensions)during the working day, and to giveemployees the facilities to do so.'(retailer). It is perhaps worth remindingourselves, however, that over 29 millionpeople now have access to the internetin the UK, and this figure could riseeven further if new access methods suchas interactive digital television becomemore widespread.

There are well rehearsed arguments(eg Caffey and Strip13) about whetherdigital television will be used to carryout financial transactions — for example,during the advertisements on Big BrotherTen? The general view seems to be that'lean back' technologies in the livingroom will not replace 'sit forward'technologies such as a PC in the studyor workplace. The pervasiveness ofmobile phones perhaps offers anothertechnological route to disseminateinformation? Why not text to the user— on a quarterly basis say — a shorttext message 'Your DC fund is nowworth £ x — if you would like moreinformation go to this website'. Orwould personal pension information likethis just be rejected as another form ofspam?

Data security and trustTrust appears regularly as one of thefeatures limiting the growth ofe-commerce and has a number of aspects— eg protection of personal data. Giventhe scandals that regularly appear in theSunday papers about unauthoriseddisclosures of personal data, many have

an overstated fear that their personaldetails will inadvertently be released toothers, or that their personal informationwill be packaged and traded ascommercially valuable data. A bookcalled 'The Cluetrain Manifesto'16 offersone of the most prosaic encapsulations ofthis general fear, 'From time to time weoffer to share our list of subscribers withdoor-to-door aromatherapy salesmen andritual axe murderers. If you would preferthat your data is not used in this way,please click the box'. Most employeeswould have confidence that theiremployer would not abuse their personaldata for commercial gain, but the fear ofsecurity breaches still influences opinion.'I don't think people are comfortableenough with the internet to transactpersonal business' (manufacturer).'Ensuring security of data may deterinvestment in the administration aspects'(retailer).

Legal issuesOne of the issues which seems to be aregular cause of concern for trustees iswhether they can satisfy their legalrequirements to provide information tomembers via material on a website. Themajority still provide paper copies just incase, although there are already someexamples of forward thinking schemes, inthe IT sector, who provide allinformation — booklets, forms, benefitstatements — only in electronic format.The general body of opinion supportsthe view that internet approaches satisfyUK requirements. In 'e-pensions',12 theauthors conduct a detailed analysis of thedisclosure of information regulations,with the regulations' archaic references toinformation being 'furnished' tomembers, and sometimes 'in writing'.Their conclusion is that 'electronicmeans (such as making informationavailable on websites or intranet sites, or



sending information by e-mail) generallycan be used to satisfy the statutoryobligations.'

Comprehension and data qualityPension managers have concerns thatmembers will not understand what theyfind on a website — in part, thisexplains their preference for face to facemethods, so that they can ensurecomprehension. Many have concernsabout liability on themselves, or 'theserious possibility that members would betaking some action (or even someinaction) as a result of inappropriatequotations obtained from the intranetsite'.11 This is a real problem — whichcan only partly be resolved by gooddesign. Given the responsibility oftrustees to their members, it is perhapsnot surprising that they try to protecttheir members from the consequences ofincorrect important strategic decisions asa result of poorly understood onlinequotations. Several pension managers feelthey will be in the firing line to clear upany ensuing mess; 'I think there is anassumption that administration will bemade easier if members use the Internet— I don't believe it will reduceworkloads' (financial services). Of course,misleading conclusions can be drawn as aresult of misleading or incorrect data.Poor quality data would seem to bealmost an intrinsic feature of the pensionlandscape — but one which cannotsurvive a transition to internet-basedsolutions. You cannot present poor orincomplete data to members on abeautiful new website — it simplyundermines any credibility in the processor the outcome. The commercialsoftware and systems providers in thepensions trade press regularly bemoan thetime and cost involved in getting datasufficiently clean to be offered up via awebsite. Given the number of

acquisitions, mergers, special benefitscales and tranches of benefits in amodern final salary scheme, poor qualitydata may not be surprising but it stillneeds to be resolved. A decision tomove to the web may be just the spurneeded to resolve those historic dataissues once and for all.

CostA surprisingly large number of managersargued that they could not get theresources or backing to launch an internetsite. Looked at from a strict cost/benefitstandpoint this is probably not surprising.One response pointed out that for smallerschemes (say less than 10,000 members) 'Idon't see there being sufficient savings inadmin/staff costs to justify the cost of webenablement' (financial services). Onemanager of a final salary scheme admittedthat his perspective might be different ifhe operated a DC plan, but with hiscurrent set up 'I am sceptical that therequired investment in websites will everbe available or justified' (construction). Ofcourse, timing is everything, and thecurrent crisis of pension funding withmassive deficits is not the time perhaps tobe raising what many would argue is anon-essential investment like a website.Equally, cost is not the only constraint onavailable resources to give the opportunityto build an intranet or internet site. Thereis far too much on a typical trustee'sagenda nowadays, with deficits, benefitchanges, increased contributions andretrospective legislation changes forexample, to squeeze in something asfrivolous as a website. 'The barrier tofurther development is trustee time'(technology).

The internet as a threat?Finally, one of the barriers to internetgrowth is undoubtedly the pension


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managers themselves, in their role asgatekeepers. This can be as 'simple' astheir personal discomfort withtechnology. One reply said that hiscompany had no website, 'I am a bit ofa dinosaur when it comes to technologyand have to be forced to apply it onlywhen necessary' (construction). Thisdiscomfort could also be a concern aboutthe eventual implications of automationand web technology on their ownworking environment and workprospects. One pensions article from anoutsourcer predicted that we could seeunmanned pensions offices within thenext 10 to 20 years, and one otherresponse to the Pensions survey saidsomewhat ominously 'websites willtotally replace conventional pensionsdepartments in the fullness of time'(manufacturer). Managers may not be tookeen to hasten their own demise!

Communication oradministration?In response to the question posed in thesurvey 'Will the internet have a biggerimpact on the administration of pensionsor their communication?' pensionmanagers voted 29 per cent in favour ofadministration and 71 per cent in favourof communication. 'Communication willhave the biggest impact initially, butlonger-term it will be administration.'(retailer). It is clear that the internet hasa significant opportunity to play a leadingrole, both in improving theunderstanding of pensions and inimproving the efficiency of deliveringpensions. In terms of timing, 'initiallycommunication with static websites;progressively it becomes administration'(IT supplier). There was no markeddifference between final salary and DCschemes, but some strong sectorvariations. Financial services companieswere the strongest advocates of

communication with 89 per cent infavour; manufacturers were the mostoptimistic about the administrativeaspects, with 53 per cent supporting thisrather than communication.

In part, the slow pace of developmentmay be no more than natural cautionamongst the pension community, buttwo key deterrents emerge, in the formof poor quality data and the sheercomplexity of pensions, which manypension managers see as leading to acontinued need for face to faceexplanations. The author's view is thatthe educational aspects will predominatefor the next five years, but as increasingfocus is put on the costs ofadministration of closed final salaryschemes, web-based self-service willbecome a necessity.

Ahead of its time?It may be that we simply have to bemore patient and wait for internetapplications to be more prevalent in thepensions space. Perhaps we can look tothe USA — regularly cited as the futurein these areas.

One of the features of thedevelopment of the commercial DCmarket in the USA, has been the growthof services offered to plan sponsors.Technology has a major role to play interms of delivering these enhancedcommunication, education, access andadministration functions in the most costeffective fashion. Figure 6 shows that thefeatures offered to participants haveexploded. The proliferation is referred toas an 'arms race' and as in many otherarms races, the cost of staying in thegame can become crippling, andeventually lead to the downfall of someof the players. The new services areincreasingly web oriented — startingwith access to information (via thetelephone, the web and now personal



2 -

1.5 -

1 -

0.5 -

0

DC assets ($ trillions)Online

investmentadvice

PDA access to

plan information

Web access toplan information

Online transactionsand loans

Multi-fund/mutual-fund windows

Self-directed accounts

Plan loans

First 401 (k)VRU access to plan information

Daily valuation ate

1980 1985 1990 1995

Source: Retirement Services Roundtable Data Collection Exercise 2002

Figure 6: The 'arms race' in US DC plans

2000 2005

digital assistants (PDAs), but interestinglynot mobile phones, or cell phones as ourUS colleagues call them) but soonmoving into transactional capabilities andremote delivery of advice oninvestments.

More to the point, it is not obviousthat all of these enhancements areactually used by participants or valued bythem. It is argued that many of theseenhancements are demanded byconsultants as a condition beforeproviders will be considered forrecommendation to the end clients,'providers have turned serviceenhancements into a mandatory salesante'.17 Figure 7 contrasts the availabilityof features with their usage by planparticipants. To provide these servicescosts a great deal, but they do little tosatisfy an unmet demand or increaseparticipant satisfaction. Brian Hagueagrees that a similar theme emerges in

the UK, in that many 'hygiene' featuresinsisted on by consultants for beautyparade purposes are not fully used bymembers: 'you could accuse theconsultants of making too much of anissue of these new features'.10 Othercommentators suggest that the market'sperception of suppliers who are seen asinnovative is not proportionate to thebenefits. In other words you have to beseen as forward looking, even if the keyrequirements are somewhat static: 'thefeel-good factor for innovation is greaterthan the resultant functionality warrants'.One pension manager summarised thisdisparity between features and usage as,'few of our members are screaming forinternet access' (manufacturing).

To -which the author would add afinal coda — 'not yet'. The internet isthe way of the future for both corporateand commercial pensions alike, and willhave a key part to play in getting


Wesbroom

Daily valuation

Online access

Brokerage

Online advice

] 2%95%

88%

18% IZ]6%

Offered byproviders

Offered byplan

sponsors

Used bymembers

20% 40% 60% 80% 100% 120%

Definitions of usage by members:

• Daily valuation - reallocating balances weekly or more often• Online access - access online account annually or more often• Brokerage - use the brokerage window• Online advice - prefer to receive financial advice via website

Source: Retirement Services Roundtabie 2002 and Hewitt Associates

Figure 7: Adoption and usage of DC plan services

members to accept their role in planningfor their own retirement.

References1 Bocy, P., Chaffey, D , Greasley, A. and Hickie, S

(1999) 'Business information systems' Technology'development and management', FT Management,London.

2 Evans, P and Wurster, T (2000) 'Blown to Bits, Howthe New Economies of Information TransformStrategy', Harvard Business School Press, Boston MA

3 Department for Work and Pensions (2002)'Simplicity, security and choice, Working and savingfor retirement'. HMSO Cmd 5677, December 2002

4 Robinson, P. (2001) 'E-commerce heralds a new erafor financial services'. Financial Adviser TechnologyExtra, 1st edition. Financial Tunes Business, 31st May,2001.

5 Hewitt Bacon & Woodrow (2004) 'Annual Surveyof DC and AVC Marketplace", London, May 2004

6 Capita Hartshead (2003) 'The 10th annual pensionsadministration survey', Capital Business Services Ltd,May

7 Ensor, B (2001) 'Unwrapping UK pensions',Forrester Research, London, Apnl 2001

8 Cornall, M , Joht, N., Ammashashun, A andAthwal, G. (2000) •E-Actuanes", The Staple InnActuarial Society, June 2000

9 Inland Revenue, Simplifying the Taxation otPensions, December 2002 and 2003 and Finance Bill2004

10 Hague, B interviewed in Wesbroom, K (2003)e-Pensions, Dissertation for Masters Degree ine-commerce, University of Kent

11 Buchan, I (2001) 'Internet, the only way ahead forpensions7' Journal of Pensions .Management, Vol 6, No.4, pp 305-310

12 Barker, F., Blackwell, J , Hall, P, James, T andRyland G. (2002) 'e-Pensions'. Tolley Lexis-Nexus,UK.

13 Fowler, G (2002) 'No monkey business — whatinvestors need to know and why'. Financial Times,Prentice Hall. Pearson Education Limited. Harlow,UK

14 van Steems, H (2000) 'Online finance Europe —Invasion ot the customer snatchers', JP MorganSecurities Ltd, June, London.

15 Coffey, S. and Stnpp, M. (1997) 'The interactionsbetween computer and television usage'. Journal otAdvertising Research, Vol 37, No 2, pp 61—67

16 Locke, C , Levine, R., Searls, D and Weinberger, D(1999) 'The Cluetrain Manifesto The End ofBusiness as Usual', Perseus Publishing, Reading, MA

17 Retirement Services Roundtabie (2002) "Follow themoney Strategies for realigning the economics ofthe defined contribution business'. CorporateExecutive Board


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