The gig economy with its informal work structures, lack of traditional employer-driven pension funds, and longer life expectancy all contribute to a significant retirement savings gap for many Americans, and the pandemic has only served to worsen this burden. While some dipped into their retirement savings during the pandemic, almost half of America plans to save more for retirement after the pandemic.
Meanwhile, an increasingly complex regulatory environment, stagnant interest rates, legacy technology systems, and escalating costs are making it harder than ever for service providers to give savers what they need. For the financial services industry – especially those in the retirement recordkeeping business – the growing savings gap has brought to the fore a big challenge: how can firms respond to emerging and growing customer demands with meaningful solutions?
In March 2021 we polled hundreds of business and technology leaders at retirement services providers to see how we could help, and we learned that many firms are turning momentum from COVID-19-inspired needs into creative, large-scale digital transformation strategies and solutions that could yield exponential post-COVID-19 benefits.
Core technology modernization was, and still is, a primary focus for providers, and respondents reported an appetite to increase investment in initiatives related to design thinking principles and agile practices. And the faster these firms transformed themselves digitally, the better they reported both their business outcomes and their business outlook.
Three in four say complexity of their IT infrastructure hinders progress
Moving to the cloud is a great way to transition from current mode of operation to the future mode. As a first step, exploring how legacy assets – even if only partially – can be monetized to fund some of the outlay for new infrastructure and technology, is a practical move. Taking advantage of services, solutions, and platforms already available in the market for cloud transformation would be a logical next step and a viable alternative to building these assets in-house and ground up.
This includes assets for learning, engineering, and business. Building a skilled and experienced team to drive this transformation and deliver the desired outcomes for business needs to be a priority too. With this as the foundation, a cloud consumption layer overlay allows business functions within the organization to build and leverage the utilities and services they need – and deliver customer outcomes with agility.
Mainframe-based record-keeping systems are an agility hurdle
Mainframes still house the most critical applications used by the retirement services providers and protect their most valuable data. The level of security, compliance and availability of these systems remain practically unmatched – and yet they slow innovation. Lift and shift to the cloud is barely a resolution that will pay off. Introducing APIs to mainframe applications with judicious identification of the microservices being exposed to the new applications on the cloud can provide a start.
The strategy and plan for modernization must also address full-service recordkeeping client administration, operations, and technology functions. The real opportunity here is to amplify the ubiquitous operational support with AI-enabled analytics capabilities, improve visibility of participant behavior, and eventually create new process paths to drastically improve the retirement savings experience for plan participants and sponsors through the use of cutting-edge digital technologies.
Regulation management will continue to be a priority
If not factored in early, implementing the digital transformation can quickly get derailed by complexities once compliance and regulations are added to the mix. The digital innovation champions within the organization need to engage their partners in legal and compliance early and often to stay in front of potential areas of concern – especially within a regulatory environment that is constantly evolving. With transparent collaboration, robust regulation and businesses innovation can co-exist to meet and exceed customer demand for great experiences.
In summary
Companies that were already on the path to pivot to a microservices-based, data-driven, cloud-first core are best equipped to offer the well-regulated, self-service tools needed to manage contributions and investment allocations at this moment of post-pandemic inflection.
Those who began their digital transformation by necessity during the pandemic will do well to continue to capitalize on the momentum to become more agile, deliver greater value and grow.