The pensions industry in the UK has undergone some of the most profound changes in a generation as successive governments have taken steps to encourage greater saving to prevent real hardship in old age. Changes to the way pension pots can be accessed, the scrapping of compulsory annuities and changes to the state pension all mean that life and pension companies are having to reshape longstanding products and systems.
But progress on this front is being hindered by firmly entrenched silos, whether from a product and data perspective, a tech perspective or even from the more fundamental people and culture point of view. There is no doubt that the operating structure of these firms will challenge their ability to not just respond but flourish with the known and unknown changes over the next 20 years. Taking a close look under the bonnet and finding solutions to remove these silos is key to the continued success of the industry and its ability to serve its customers effectively.
Of course, a firm’s culture lies at the very heart of its ability to address these issues. Even the most sophisticated strategic plans will come to nothing without a supportive culture. We need to create an environment where innovation is not just desirable, but at the core of the decision-making process. We need to do away with the risk adverse environment all too prevalent within many of the largest financial services companies and create a safe harbour environment where new propositions are developed and trialed, without fear of failure. There should be an emphasis on learning from mistakes and companies need to be able to fail fast and often. The FCA regulatory sandbox, which enables tech start-ups to test new ideas in a safe environment is a model that should be learnt from.
There is no easy answer to overcoming the silo problem. Many of these demarcations have developed over decades – to solve a specific problem that existed at that time – and will take time to remove effectively. But technology, and more specifically, getting the back office in order will be pivotal to efforts to overcoming this and modernising the industry. Many companies within the sector are still struggling with outdated equipment, with some systems dating back to the 1980s. Outdated systems lead to outdated thinking. Many of these systems are clunky and poorly positioned to cope with the dynamism required of modern companies. These need to be able to respond to not just a fast-paced regulatory environment, but also a more demanding customer base increasingly able to access information and make informed decisions based on their own research.
The imminent arrival of the pensions dashboard shows that streamlining of processes, and of products, is already taking place at an industry level, that will give consumers the ability to see all their pension savings in one place. However, this efficiency is still not trickling down at a product level. The majority of new savings products such as the Lisa are largely concerned with a single outcome: getting more people saving. But the industry still persists in treating them as entirely separate entities. Greater simplification is needed – rather than looking at each product in isolation, it is time to start looking at them as a suite of products with a similar endgame.
We are very fortunate as an industry to have a large number of very bright and passionate people. But all too often, the knowledge and skills of our most talented is not being maximised. Knowledge silos, for instance, are a common problem: product, industry and data expertise is all too often concentrated in the hands of the few. While firms can circumvent difficulties for a time, when a key person leaves the company, or moves to a different department, that knowledge departs with them and gaps in understanding really start to become apparent. A complete overhaul is needed to ensure changes designed to strip down silos are implemented, and to make these changes stick.
The good news is that improved technology enables us to really utilise and exploit knowledge within firms in practical and meaningful ways. Internal innovation hubs are an effective portal for knowledge exchange and ensure this knowledge is retained once an employee moves on. This also raises the tantalising possibility of cross-fertilisation of ideas and solutions – which opens the door to genuinely innovative thinking.
The successful firms of tomorrow will be those who can cope not just with the current industry challenges but also the unknowns in the future. Constitutional change for instance, in the shape of Brexit, is on the horizon. Equally, far-reaching directives such as the General Data Protection Regulation landing in 2018 mean it will be incumbent on firms to navigate their way through inevitable uncertainties. As we enter unchartered waters, yesterday’s solutions to yesterday’s problems are unlikely to serve us well.