Keynote by Tom Bottinga (Group Life) / Panel — PensionTech Innovation Lab: Insights and Case Studies. Featuring Martijn Vos (Ortec Finance), Tom Romanowski (Kandoor) & Ruud Kleynen (Hi There: The Digital Insurer), and moderated by Martijn van Eck (Holland FinTech).
What do personal finance and pensiontech have to do with one another? Often, those of us who are managing our personal finances haven’t yet begun to think about our pensions. But this is set to change. Technologies to manage our everyday finances and our retirements funds are slowly merging, with the aim that, one day in the near future, we will be able to see an overview of our entire financial position in the one place.
Tom Bottinga explained why this trend matters in his keynote in the Personal Finance & PensionTech track. He pointed out that the pension industry faces big barriers, but also big opportunities. In the Netherlands, there are 6.5 million participants in pension schemes, with administration costs of 110 euros per person annually. Pension companies spending over 1 billion euros per year just to administer pensions.
How do we reduce these costs and put them back in the pocket of consumers, without decreasing service quality?
Tom told the audience that the big challenges are cost, change, complexity, and legacy. We need to make pension products simpler, yet the pension industry is not an agile market, change is slow, and there is also a lack of talent to improve the industry. Legacy issues abound, as most pension systems are as much as thirty years old. These systems have been developed, but they have never really been renewed.
Given an ageing population and a market of increasing complexity, most of us would agree that pension funds and other retirement savings schemes have to change. But, Tom asked, who should lead this move? Where are the people who are going to innovate and pilot technology?
Many large companies want to enter this market because there is money in it, but they are not willing to put their own money on the line. Moreover, Tom argued that money alone is not enough: we need market players who are motivated not only for commercial reasons, but also because they have an interest in the products themselves. As he put it:
“There is no motivation, no force within people to put in their own money and then go to pension funds and say this is what you should have.”
However, we do possess the knowledge and technology to make the changes we need:
“The culture in the pension market is like the government culture, there is no real appetite for change, for doing better. With tech I really believe we can help this sector.”
Tom recommends we spend a little less effort focusing on solutions such as blockchain that won’t be actionable for three to five years, and instead focus on problems that exist now. We need to immediately simplify products and processes, and to lower costs.
What are the barriers to achieving this? One problem is that insurance is a difficult business to step into, partly because of the industry’s culture. The question of who owns these market problems and will direct developments is an open one. We are all looking at each other in what the Dutch call a “polder model” and are confused about where we’re going.
Tom’s keynote was followed by a panel discussion moderated by Martijn van Eck. Martijn began by posing a debate question: “We need pensions but we don’t need pension funds.”
Tom Romanowski of Kandoor replied, “We need pensions but it doesn’t really matter who takes care of them. Martijn Vos agreed, stating:
“We try to help people have income over their entire life, and it’s less important how people reach that goal. The key question is how can we really make this product more sexy or appealing to a thirty year old.”
Martijn van Eck asked if it is realistic to get operation costs down to zero through the application of technologies. Martijn Vos responded that he is not sure if we can bring the cost down to zero; the point is more to give people returns that are as high as possible. Focusing on reducing costs is not necessarily the best way to achieve that goal. Then, over time, we can look at lower costs.
Tom Bottinga responded that, in fact, we should look less at costs and focus more on the customer experience. We should think about what kinds of products customers need, how to deliver them in real time, and how to give people portals through which they see all information relating to their funds. This is the way you make real progress. Often we think from the inside but it doesn’t work: you have to think from the outside.
Martijn van Eck then shifted focus to the “exciting topic” of regulatory compliance. Is it possible for fintechs to enter the pensiontech marketplace? Is there really a level playing field?
Martijn Vos responded that there is no real level playing field at this point in time. This is a real issue because “there is no drive for innovation, for young people to enter this market.”
Young people aren’t the only demographic to shy away from pension planning. Tom Romanowski pointed out that people have to make many financial decisions, and this causes people stress. They can’t afford to pay a pension advisor to sort it out for them, because it is too expensive.
One solution is to leverage the sharing economy to help people and to scale this with technology. That is what Kandoor is trying to do. He commented, “I really believe in financial planning but few people use it.” Making it easier and more fun to use may encourage people to engage. As Martijn Vos put it:
“In the end, I think the only thing that will really help is to make things actionable.”
Ruud Kleynen added:
“Blockchain is a nice technology and it is the future but it does not help us now or in the upcoming three years. So we need other ways for fintech to help the market.”
Tom Bottinga commented that pensions aren’t sexy, but they only require a small shift to make them attractive. It is not a lost cause. But companies need to be careful how they approach the problem. For example, using the word “longevity risk” to describe customers is not a good way to approach the consumer, since it refers to people who are likely to die soon. In an industry headed towards greater customer-centricity and personalisation, this is not a sexy way to approach the consumer.
Besides industry culture and product adaptation, the pensions market faces a major contradiction: the question of consumer choice. On the one hand, choice is beneficial to consumers because it puts more power in their hands to make choices that suit them.
On the other hand, as Tom Romanowski pointed out, choice increases stress. The trick is to find a balance between these poles, to provide choice for those who desire it, while making retirement planning safe and secure for the majority who do not wish to invest much time in planning for a distant future.
Martijn van Eck closed the session by remarking that lots of change is expected, and we can’t do it alone: we need all parties to come up with “future proof” products and bridge existing gaps in supply and demand.
Live blogged by Erin Taylor, senior researcher at Holland FinTech. Read more about Personal Finance and PensionTech in our Fintech Vortex article series: Bringing Pension Technologies to Consumers and Towards the Personalisation of Finance. Join the conversation with us @HollandFinTech on Twitter, #FintechVortex
Meet the Speakers
Tom Bottinga is Director at GroupLife, a Dutch company supporting pension funds, life insurers, premium pension institutions and pension providers. GroupLife develop and implement responses to market development, organizational and IT applications issues.
Managing Director, Ortec Finance
Martijn Vos is Managing Director of Pensions & Insurance at Ortec Finance, a company who improve decision making by applying quantitative models. They provide technological solutions and advisory in the fields of asset liability management, asset allocation, risk management and performance attribution.
Founder, Hi There: The Digital Insurer
Ruud holds two master degrees in actuarial science and econometrics at the UvA and a PhD in Asset Liability Management. He worked as professor at the University of Maastricht and as consultant at his consulting firm Kleynen Consultant. In the beginning of 2016, he founded Hi There: The Digital Insurer, a fully automated insurance company benefiting both insurers and consumers.
Tom Romanowski is the co-founder and managing director of Kandoor, a finance knowledge centre powered by volunteer professionals. He holds a degree in corporate innovation from Stanford and a M.Sc. in Marketing from Tilburg University.
Martijn van Eck
PensionTech lead, Holland FinTech
Martijn van Eck is PensionTech Lead at Holland FinTech and a partner at Symetrics. Symetrics is a European FinTech50 start-up based in Amsterdam and London. They are building SyMath, our integrated financial risk analytics software application platform.