April 05, 2013
Large public systems pay $22 per member per year on technology, according to a recent survey. This does not include the cost of the single greatest technology project a pension system faces—a pension administration system implementation. Even pension funds with the largest memberships will potentially need to spend hundreds of dollars per member in order replace an outdated administration system.
The question is how many funds can afford this initial cost? Where are the affordable solutions in the market?
Of special interest to Linea are smaller funds—the 500 – 5000 member systems. These pension systems often have business rule complexities equal to the larger funds, but often lack the budget for complex systems, and the I.T. staff to maintain these systems. These are the funds that can neither afford the multi-million dollar solution nor the annual maintenance and support costs and labor requirements.
In other industries, I.T. software vendors have been able to provide software as a service (SaaS) even for complex systems (CRM, for example). But to date, we have not seen a sustained effort by any vendor to offer a subscription-based model for their PAS product.
We can understand the difficulty: many systems have unusual business rules, and a one-size-fits all product will likely not work. The implementations themselves are also complex and require significant time, especially for efforts like data conversion. For vendors to provide these services up front, and recoup the cost over the life of the contract, places risk onto the vendor.
Nevertheless, we are confident the business model can work for both sides: vendors will be able to realize a significant income stream over a multi-year period, and will be able to reach a segment of the market that was previously inaccessible. And the small retirement systems will benefit by having access to technology that was previously priced out of their range.
We have heard some vendors claim that they are ‘exploring’ providing SAS models for clients. We are eager to see this turn into a reality.