Review of the Big Data Thematic Conference on Future Scenarios for Pension Providers: Industry, Take Action!

At the request of Netspar partners, an inventory was made of the impact data science and big data might have in the pensions domain. Using that as a starting point, a Netspar project group then outlined a number of future scenarios and two possible courses for pension providers to take. The group’s initial findings were presented at the conference on Big Data and Retirement held October 5. The main takeaway was: industry, take action!

Technological developments are an ongoing given: an ever-growing amount of data is becoming available. But who owns it? The individual? The organizations in charge of any given portion of the data? Or really just Google or Facebook? Marijn Jansen (TU Delft) warns that the control of information is fragmented. A growing number of particulars are available not only to individuals themselves, but also institutions. Once inconceivable situations are now becoming reality: consider that Amazon is moving into health care. Is it just a matter of time before Google inserts itself between pension provider and participant? The greatest challenge is not so much keeping up with technological developments, but overseeing the overall objectives – such as facilitating cross-domain digital interactions – and finding the proper solutions. The digital world must become an infrastructure that individual citizens and companies do not need to worry about.

Communications and Choice
One area with significant gains to be had for both providers and customers is communications. Over the next few years, Netspar will therefore be investing in research into how data science methods such as voice and textual analysis and face recognition can be used to better serve customers and also into the best ways of improving the communication process. At the conference, project leader Peter de Goeij discussed the underlying applied technologies and presented the initial research results from this theme project.

In the Genes
One critical aspect for pensions and retirement is the increase in life expectancy. There are risks associated with the fact that we are all living to be much older. Moreover, if anti-aging practices become more common, these will be amplified (see also Netspar Magazine, Spring 2018, “Hooray for Living Longer”). On an individual basis, as well, life expectancy and the risk of mental and physical illness can now generally be more accurately determined – not only by people themselves through individual genetic testing, but also from the available data. Such knowledge could undermine solidarity and raise insurance-related and ethical issues. A Netspar project is currently being prepared to address the questions arising from these developments in terms of life-cycle decisions, insuring against risk, solvency, and the potential effects of speculation and misinterpretation.

Market Structures: Four Scenarios
In terms of the relevant markets, products, and customers, the project group foresees a simplification of regulations and products, greater customization, and a necessity for drawing a clear distinction between financial products (pensions and retirement savings) and financial advice (broad-based planning). It developed four market structure scenarios, each with varying degrees of freedom of choice, customization, and competition, as well as different data science impacts. These ranged from a situation much like the existing market to one with a few dominant providers and a great deal of freedom of choice (comparable to today’s healthcare insurance market) and a fully competitive retail market with either a great deal or very limited number of providers.

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Nokia
Given the various developments and market scenarios, pension providers are faced with one of two paths of action. They can either continue as a provider of products or become a comprehensive financial advisor. Specialization in a single category of the full product range (e.g., pension administration) means less direct involvement with participants and less fiduciary duty, but also greater competition. If a pension provider decides to position itself as a financial advisor, this will involve more integration with other parties, along with more data analysis, in order to be able to provide clients with comprehensive financial advice.

In either case, pensions can no longer be considered stand-alone products. Whether or not this is current reality or happens in the (near) future, the project group warns that pension provision could become the new Nokia. That early market leader insisted on sticking with its original product, wireless calling, even after calling had long become secondary for consumers to the many other amenities afforded by their smart phones.

Retirement Advice in 15 Minutes

The conference on October 5 ended with a speech by Marike Knoef in which she argues the need for providing people with suitable retirement advice as part of their overall financial planning, preferably within 15 minutes or less.