Faced with historically low interest rates, demographic shifts, persistent market volatility and funding pressures, pension funds will need to rethink their investment strategies and scheme structures if they are to deliver an acceptable level of retirement income for members, concludes a new State Street global pensions industry survey.
In this environment, improving efficiency is a major and growing focus. According to the State Street report, six in ten pension funds, spanning all fund sizes and scheme types, are under pressure to cut costs.
One way to boost efficiency is through consolidation. Among the survey respondents, 80% intend to pool assets and liabilities with other pension plans, with 35% aiming to merge retirement schemes within the next three years. Pooling assets, and sharing knowledge and resources offers significant benefits, notes the report. As well as cost savings, such options can improve visibility on risk, and be “an important means of developing new capabilities and opening up fresh [investment] opportunities.”
At the same time, many pension funds are becoming more self-dependent by bringing aspects of their investment management in-house. Over the next three years, 48% intend to expand their internal risk teams, while 45% will grow their internal investment teams. Pension funds will be “more discerning in their use of consultants and asset managers too,” with 39% of those surveyed planning to reduce resources allocated to external asset managers, compared to 34% that will increase them.
Counting the data cost As pension funds shift these functions in-house, ensuring they have the specific internal expertise will be crucial to their success, notes the State Street report. Recruitment to attract and retain the requisite talent is one aspect. In addition, pension funds will have to invest in high quality data to support the internal teams’ investment decisions and risk management duties.
Yet accessing the necessary data can be expensive. And as data vendors publish ever more, and more esoteric, indices and benchmarks, those costs are increasing.
A more efficient approach
By leveraging a managed data service though, pension funds can simultaneously lower their data expenses, and increase data quality and efficiency. Partnering with a professional provider with the necessary data collection, validation, transformation, storage and distribution expertise can lead to:
- Reduced total cost of ownership through savings on legacy vendor fees, data delivery efficiency and productivity gains.
- Tighter cost management through a closer alignment between data consumption and business usage.
- Elimination of data feed redundancy – which will become increasingly important as pensions merge retirement plans.
- Improved index vendor management.
- Improved data accuracy and service levels for investment, risk and operational teams across the organization.
- Greater responsiveness to new business opportunities by quickly and easily adding relevant benchmarks as required.