INTERNET RESEARCH

The golden goose

This article first appeared in Pensions world in May 2000

The brain child of computer programmers is growing up. Simoney Girard staff writer witnesses the nurturing of the net

Four years ago, the internet was just a toy for most people. Now, far from a plaything, it is clearly one of the most important inventions of the past 50 years, as Figure 1: Market presence shows.
It is changing everyone’s lives, and the pensions industry is no exception.

Hatching out

More providers are transferring their scheme administration to a fully integrated, computer based system. The pace of change is frenetic. Even just two years ago, there were very few pension schemes with internet access and email, let alone computerised administration systems. In Stephanie Hawthorne’s article, ‘Join the Chattering Classes’ (Pensions World, February 1998), Abbey National Benefit Consultants had only just amended company policy to allow internet access. Now, its employees would be lost without it. Just seven months ago, Dresdner RCM set up its own website. During the three month period of its launch to the end of 1999, there were 3,300 unique visitors who investigated it. Scottish Amicable can boast 2.5m visitors a year. The apocalyptic date of January 2000 was chosen to implement Edis’ website, which has "radically" changed the way the company works already, according to Ken Edis, chief executive.

Table 1: Baby boom charts those company sites which have been set up recently and the number of visitors for 1999. JP Morgan tops the table for setting up a site in 1994; most started in 1997 or after. Clive Briggs, Arthur Andersen, says: "The uptake has been phenomenal. It will soon become a natural way of living, just as one would get the bus, take a train or make a phone call." Lars Singleton, AIG Life, says: "There is a growing awareness of the future opportunities... It has affected our company’s standing in the pensions industry through a reduction in operating expenses, faster and better delivery to the policy holder and end user empowerment".

Growing pains

As with all new toys, like mobile phones which play the Star Wars theme, functional business applications such as internet access and email are open to overuse, even abuse. Baljit Ghosal, Euraplan, admits: "This used to be a problem. Two years ago everyone had internet access but this privilege was abused. The decision was made to limit access to those who need internet for business and a central PC terminal was provided."

Nigel Chambers, Johnstone Douglas, believes that: "The efficiency of the internet is significantly reduced if access is restricted". However, there are ways around these problems other than limiting access. Administrators can establish a proxy server to prohibit access to pornographic and other illegal material, what is known as "ring fencing" or "firewalls". These must be "tested regularly and thoroughly", according to Paul Greenwood, W M Mercer. "Emma Speer, Dresdner RCM Global Investors, says: "All employees with access to the internet are issued with a copy of the ‘Internet Acceptable Use Policy’... We have found that by following this approach and clearly setting out guidelines, misuse has not been an issue." Scottish Widows goes one step further by providing an internet café for employees’ personal use during lunch breaks. Email abuse such as harassment of co workers has not caused anxiety for most companies (see Table 1: Baby boom). However, "There is a significant threat from viruses which can have a severe impact on the company’s operation," warns Hermes’ Neil Infield. Be careful: all emails sent and received can be monitored by IT administrators. Cumulatively, the hours spent on non essential email costs companies both labour and time, and can hold up important documentation. One small step for man, one giant leap for the telephone bill?

Sleeping soundly

It was not so long ago that hackers jammed the Ebay and Yahoo sites, raising fears about the security of ecommerce in general. Customers desiring to conduct business via the internet must be confident that suitable precautions are being taken. Tony Green, Genesys Systems, says: "Any software we do which incorporates use of the net to communicate with pension members must have total security built within it". Peter White, Capita Hartshead, speaks in almost identical terms. AIG Life, among others, uses secure site technology and encryption to ensure that clients are protected. Other steps involve using virtual private networks (VPNs) or extra/intranets.

The proposed Electronic Communications Bill (to be finalised in the summer) should combat most of these concerns. Bob Hunter, Scottish Life Assurance Company, hopes the "Public will accept that the internet is a safe place to conduct business". Karen McGuigan, Edinburgh Fund Managers, believes that "the bill will legislate practically on security issues".

All expenses paid

The average cost of setting up a site is minimal, for personal and for company use, apart from staff time and expertise. Allowances must also be made for service providers (ISPs) selling a "copyright" name to a company and the fact that after 10 or so megabytes of free space, one must buy more to expand the site. Legal issues about copyright may cause some companies to run into expense, but there are plenty of law libraries, case studies and even lawyers on the internet to inform and guide, as Robin Ellison explains in Box 3: Lawyer online. Regarding the ISP’s and web designers’ costs, prices have been reduced significantly owing to more consumers shopping around for a deal. "There are currently 638 ISPs in the UK alone: it’s very much a buyer’s market", says James Betts, Owlnet Web Design. Regarding costs, he said: "An example of charges may be £150 registration fee, then £200 a year rental of web space (usually 20-50 Mb), although this usually goes on the size of the web site". Extending web space averages £60 for 5 Mb, depending on which provider one registers with, adds Danny Inness, Information Systems.

The advantages of use far outweigh the price. For internet and software providers, such as Total Systems, a website is "seen very much as a ‘shop front’", as Jim Keaney explains. For pension providers: "A pension scheme website is more likely to attract new, younger members than a dry, boring scheme booklet. It enables the use of movement, graphics, music and video to explain things... Members take in much more information and will remember more if they enjoy the experience", according to Lesley Carline, Lynx Heywood. As for email communication, Mr Singleton, among others, asks: why waste money on postage which might not arrive, when in seconds the intended recipient can get the information, read it and reply? The problem of uncertainty regarding receipt is overcome by adjusting settings on Outlook or Pegasus to give the sender delivery and reading confirmation. Furthermore, it is environmentally friendly and helps to keep the workplace clutter free.

What’s sauce for the goose...

The same applies to scheme administration and client service. Integrated computer assisted administration is cheaper and upkeep of records is much easier than storing everything in cardboard boxes and cramped filing cabinets. With the likelihood of increasing complexity over Government pensions regulations such as stakeholder schemes, anything relieving the volume of paperwork has to be a good thing. Record amendments, filing, bookkeeping, communication with members, computation of benefits, storing templates of forms and member information: all this can be ready at the click of a mouse.

At the start of April, Lynx Heywood implemented its benefit modelling service for its clients as part of a drive to provide internet services in line with the pace of change. Others are seeing the benefit of such services. According to Mr Briggs: "With occupational pension schemes it is great for communications. It provides people with tools for explaining pension scheme options, building helplines and expanding ecommerce options." It also enables scheme administrators can create secure sites where members can access personal information. JP Morgan responded to our survey with these remarks: "The pensions industry is growing and so is internet usage. Our DC clients are increasingly using the internet and asking for more web based communications. Trustees can now access performance and other information required for their reporting back to their clients. Consultants are also able to obtain information, which they could use as a background to their research".

Whether the internet will encourage more pension funds to manage their own investments rather than use big investment houses is another issue. Brian Sceats, Clerical Medical, believes that "with so much information, the internet will act as a background information and filtering medium, but expert advisers are still needed". It is conceivable, however, given that so much free information is available. So, what next?

Formative years

Datamonitor reveals in its survey: The future of e-banking in Europe, that by 2004, 21m Europeans will be banking over the internet. It predicts that by 2004, the yearly expenditure on these systems in Europe will have quadrupled from $362m in 1999 to $1.4bn. E-business is booming: public interest is high, shareholder expectation is great and administration costs are low. As Mr Betts says: "Europe needs to step forward and give ecommerce a go".

Like the DotCom shareholders in 1999, willingness to take a chance produces amazing returns. Ms McGuigan says: "Investment in ecommerce has increased with the realisation that this is an important new channel which will require further, ongoing investment." According to Richard Buxton, speaking at Baring Asset Management’s Global Investment Conference: "The dynamics of ebusiness economy means that returns will grow... In a gold rush, invest in the guys who are selling the shovels".

Ms Speers says: "The internet is becoming the main source for business information... Pensions funds are using the internet to inform their members about their schemes and, in turn, investment management houses are using the internet to inform the pension funds about products and services they offer".

Cast your bread

Two things will, at least for the near future, pull on the reins of advance. Firstly, there is concern about hackers, abusers and email junkies. A new preventative system will be implemented one day, and a cyber nerd somewhere (California, most probably) will override it the next. However, there are many ways to combat these problems, from sacking to secure encryption. Familiarity leads to trust: the more it is used without mishap, the more accepted the internet will be as a means of pension provision and administration.

Secondly, many would rather see a tangible document. Joanne Smith, Foreign & Colonial, says that although the internet is fast and cost effective, the advantage of paper communication is that "you need signatures, which you cannot obtain via the web". However, the Financial Services Authority (FSA) is making progress towards electronic signatures. Also, only a few pensioners have internet access so written communication is more appropriate, while for active and deferred members, internet communication is more natural.

Access is widening to include televisions and mobile phones, so it is probable that within 20, even ten years’ time, the majority of the population will be internet literate, willing to communicate and conduct business over it. Mr White predicts that in five years, maybe 25% of Capita Hartshead’s business will be on the internet, "as members, deferred members and pensioners become more internet experienced". Euraplan estimates 33%, Fairs Systems, 55% and Edis, 70%. Others are more conservative (see Table 1). Mr Briggs is uncertain that Arthur Andersen will ever conduct 100% of its business over the internet, because "there will be no physical interaction, although the internet will still be an important part of life". Similarly, Ulster Bank’s Sinead Egan says: "At present the website is used to service our existing clients rather than for new business generation. We do expect this to change, but it is hard to qualify what form these changes will take."

Figures and statistical predictions may lie, but one thing is true: Individuals and companies are more than ever accepting the benefit of the internet. Time, labour and cost effectiveness is available to us all: don’t let us kill the goose that lays the golden eggs.

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