Ageing, traditional batch processing administration systems are no longer capable of meeting the service level needs of modern pension and life fund administrators.
Administrators are exposed to heavy penalties if they fail to achieve tighter service level agreements than they have previously encountered. The knock-on effect can be tremendous: many of the administrators are managing as many as 30 000 members for a single client, life and pension fund members perform or require an average of 10 transactions per month, which places a heavy burden on IT systems, totalling around 5 million transactions per month.
Compounding the issue are the many new products emerging in the market, such as unitised funds. Products are the key to differentiation in the market. And companies are proving to be innovative in their approach, particularly considering newly introduced legislation.
For example, people can invest in high-, medium- or low-risk, hedge and wrap funds. And they can choose to place percentages of their investment in each, creating a diverse risk portfolio. Administrators must manage that, which places a burden on their administration systems.
Portfolios also have values attached to them that change daily.
Complicating the matter is legislation, such as the Pension Funds Act. One of the requirements is that administrators must deliver full accounts to their members, including administration fees, and one of the most efficient methods for achieving that is the Internet. People have online access to detailed accounts of their portfolios. And they have a route to complain through the Pension Funds Adjudicator and FSB about funds making decisions outside of their powers; that a member has been prejudiced through maladministration; or that employers participating in funds have not fulfilled their duties according to the rules of a fund.
Eighty eight percent knock in profits
One large local pension fund administrator has already taken an 88% knock in profits in an effort to mitigate brand exposure for "bulking", which means it aggregated current accounts in order to obtain a favourable interest rate from the banks.
Considering daily changing portfolio values and full, online account information access, administrators need to be precise in the values they quote to their clients. A slip-up there could cost the business millions of rand.
Legislation also requires transactions to be auditable, which places an even greater burden on transactional systems. When members leave a scheme there is another service level agreement to be met. Typically administrators have seven days to process the portfolio and pay out the member; but it depends on the specific administrator and portfolio.
Considering the many changes that have occurred in the industry, it's no wonder that batch processing systems are an endangered species. They typically process transactions when the business closes its doors for the day, but they're running out of time to complete the rapidly increased volume between closing and opening times. And customers are still online, expecting access to their portfolio information.
Administrators which don't employ real-time processing systems that can scale according to their growing or diminishing needs will rapidly fall behind their competitors because service delivery and product diversity are the only differentiators the schemes possess.
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