Until recently, the three pillars of retirement funding – government pensions, corporate pensions and private savings – were separate, non-interchangeable areas and sources of business for its players. But now, a seminal change is underway:
- People are living longer, healthier lives, endangering the sustainability of most national government pension schemes. These models, mostly defined benefit or final salary, were designed at a time when a pensioner was expected to live only about ten years into retirement. The age pyramid allowed working populations to comfortably support their retirement communities. Today, however, with projected worker/pensioner ratios of 2-to-1 or worse, public systems are going to need additional overhauls and more funding.
- Rapid technology shifts over the past 20 years have led to the rise and fall of entire workforces. Lifetime employment with a single company has become a rarity. Where workforce turnover is high, the portability of corporate pensions becomes important. In some cases, this is mandated by law; in others, it is a differentiator when competing for scarce talent.
- When public systems fail and corporate schemes become portable, it is the end customer – the individual growing and protecting his or her retirement assets – who has to be served by the industry.
If the decision with whom and how to do business in pensions is shifting from companies and government agencies to individuals, the comfortable “one-to-few” relationship that retirement providers had is changing to a much more demanding “one-to-many.” Instead of serving one large customer, they will have to serve many empowered consumers.
In searching for better ways to manage complexity, successful companies realize they can no longer try to be everything to everybody. . In the future, agile pension companies will focus on a few specialized units, or kernel functions, around a provider’s actual core competencies. This change can be accomplished by implementing the five imperatives of pensions:
- Acquire business via employer and retain it by member
- Provide centricity around the member
- Enable members to self-manage their pension decisions and affairs
- Invest in innovative technology
- Drive investments by stakeholder needs.
These imperatives are not options to pick and choose from. Depending on the role a company wants to play in the future, the level of implementation can vary. But, ultimately, all five imperatives will have to be accommodated to position for success.
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Meet the authors
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Jason Nyilas
IBM Global Pensions Leader
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Christian Bieck
Global Insurance Leader, IBM Institute for Business Value
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