Changing demographics and evolving customer expectations are fuelling demand for a more extensive range of retirement income offerings. As the baby boomers tip over into retirement, will your business have the capacity to capitalise on this burgeoning new market? Bravura Solutions’ Head of Strategic Accounts, John Burke reports.
There has been a lot of talk lately around the proposed changes to the tax treatment of deferred lifetime annuities outlined in the recent Federal Budget. As the Federal Government seeks to shift the provision of retirement income from the public to the private purse, we can expect to see more government policies designed to make private sector retirement income solutions more attractive.
On the demographic front, we are witnessing literally millions of Australians – the baby boomers – transitioning to retirement. This dramatic increase in the numbers of retirees, combined with extended longevity is fuelling unprecedented demand for more diverse and complex retirement income streams. Baby boomers expect not just one retirement income product, but a number of products brought together to form a holistic solution that gives them the best possible income and lifestyle throughout their retirement years.
Yet current retirement income offerings are limited at best and stepping into the gap to meet increasing demand is not as easy as it sounds. Tech savvy and confident consumers, baby boomers are accustomed to highly sophisticated and diverse digital offerings in almost every aspect of their lives. It’s not surprising that these expectations are spilling over to the retirement income realm.
Right here right now, there are three key digital technologies that are both influencing baby boomers’ views about how they should be served and enabling astute providers to meet these expectations.
The first key technology is internet speeds, which have increased dramatically in recent years largely due to the advent of video on demand. By the way, it’s no coincidence that it’s called video on demand, not video on request or something similar. Consumers today are more assertive than ever before. Baby boomers want products and services delivered on their terms, when and where they want them. Not next week, tomorrow or even in five minutes time – increasingly they expect digital delivery in real-time. As a result, internet speeds are adapting and becoming even faster and retirement income solution providers must keep up or risk being left behind. In the US, internet speeds to households have tripled in the past three years.
Processing power is the second key technology. Baby boomers not only expect fast internet speeds, they also expect more sophisticated digital offerings. The ability to access rich content and complex products and services online with ease is a given. Financial services providers must find ways to access the requisite processing power capable of meeting these expectations. Previously, businesses would have had no choice but to invest in expensive hardware to obtain the processing power they needed. Today, they can simply rent processing power at a low cost on a needs basis, which transforms their ability to develop and bring new, more complex retirement income offerings to market.
The third key technology is infrastructure as a service. As with processing power, businesses traditionally would have been burdened with the cost and complexity of establishing and maintaining an in-house IT shop. Today, providers can operate an entire IT operation without having to buy a single piece of hardware. By renting infrastructure as a service – including hardware, network, storage and backup – businesses can scale their IT infrastructure up or down and access the highest levels of specialisation on a needs basis. In this way, IT costs are shared across many users, making it far cheaper than going it alone, with savings passed on to the consumer. This too lowers the entry barrier for businesses seeking to develop and bring more sophisticated retirement income products and services to market.
While many other industries have very successfully harnessed these enabling technologies, it’s no secret that some sections of the financial services sector have been much slower off the mark. According to the 2016 World Wealth Report, wealth management firms are underachieving on the digital front, reaching only a medium level of digital maturity. The industry’s tentativeness to embrace new technologies is problematic for a number of reasons.
Firstly, baby boomers in the retirement income space already expect sophisticated products and services dependent on digital technologies. They are creating strong demand for new and diverse retirement income streams, yet many of these products and services haven’t even been invented yet and the lag in their development and delivery represents a missed opportunity.
Secondly, baby boomers’ expectations about retirement income offerings and how they should be served today, will not be the same as their expectations tomorrow. Instead, these expectations will continue to evolve rapidly with each new round of technological innovation.
Thirdly, on the regulatory front, future developments in the retirement income space are equally unpredictable. All we know is that legislation and regulations will continue to shift beneath our feet with changes in government, budgetary priorities and consumer sentiment.
Looking ahead, the common denominator in the retirement income solutions space is a business environment fraught with uncertainty. While we know change is coming, the mercurial nature of the consumer and regulatory environments that fuel product design make it impossible to know exactly what it’s going to look like.
This begs a few questions. Just how many financial services providers are positioned to cope with this level of change and uncertainty? Could your current operating environment manage the continuous business transformation that will be needed? How would your business fare against competitors who proactively employ the latest digital technologies, if your business does not?
To not only survive, but thrive in the burgeoning retirement income solutions space amid a world of uncertainty, providers must also change. The answer lies in building and delivering operating environments that allow providers to adapt to the evolution of legislation and customer expectations without having to reinvent themselves from the ground up every time something new comes along.
Next generation technology is pivotal in this undertaking. Only modern, open, flexible and scalable enterprise architecture – available as a service – is truly capable of delivering the agility to respond and adapt to change, as needed. Modern enterprise architecture fully supports the enabling digital technologies outlined above, making it possible for providers to quickly develop and bring new offerings to market, at low cost. It supports a culture of innovation by allowing providers to trial new products and services and draw back and try again if they haven’t got it quite right. It enables businesses to develop sophisticated, multi-faceted and holistic solutions that comprehensively meet baby boomers’ retirement income needs. It allows providers to scale their operations up and down, according to business imperatives. And it seamlessly handles back-end complexity, while delivering the market-winning, engaging digital experiences baby boomers have come to expect.