Data & Research August 24, 2015

Public Pensions Ready for Help With Automation

Leaders of public pensions around the world agree that digital technology will improve participant services and administrative efficiency—and they want help with implementation.
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A report from Accenture suggests public pension leaders in the U.S., United Kingdom and Australia are eager to explore and implement time-saving technologies in support of benefits administration and delivery.

The research assessed public pension organizations’ leadership “perceptions, attitudes and experiences” regarding use of digital technology and automation for processing routine requests or tasks, also known as “straight-through processing.” Accenture says public pension decisionmakers clearly see potential benefit in using more straight-through processing—especially when the right support is in place from technology and finance experts.

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For example, nearly all public pension officials interviewed in Australia said straight-through processing technology would improve member services and improve internal efficiency. Fewer in the U.K. believed automation technology would improve member services (81%) or internal efficiency (85%), howerver, and the same goes for the U.S. In fact, far fewer U.S. public pension decisionmakers (63%) thought more straight-through processing would improve client service.

Accenture says the research indicated that adoption rates of straight-through processing by public pension organizations vary widely across the three developed countries studied. It seems that, at the national level, a more positive perception of straight-through processing is tied to the prevalence of such technology.

“In the U.S. only 23% of managers said their organization has adopted any straight-through processing,” the report explains. This compares with 42% in the U.K. and 94% in Australia, where perceived favorability is also higher, especially on the question of improving participant/beneficiary services.

NEXT: U.S. lagging behind peer nations 

The Accenture report finds more than half of U.S. public pension leaders (56%) feel governments in this country are “lagging behind comparable organizations” when it comes to supplying workers with quality retirement benefits. This compares with 39% in the U.K. and 42% in Australia.

But plan leaders remain optimistic, notes Owen Davies, managing director in Accenture’s pensions practice. They want to find technology providers and consultants who can create implementation plans and help participants get the most from innovation on straight-through processing.

“The digital revolution is just beginning to reshape the way public pension organizations operate and serve their members,” Davies says. ”Pressures for increased administrative efficiency and modern customer services are waking pension organizations up to new and emerging digital opportunities to transform how they operate.”

The report concludes that a variety of barriers to adoption of straight-through processing are perceived across all three countries. Prevalent are information technology concerns—notably data security and the potential for faster-moving and deeper-seated problems to arise through more powerful automation. Others cited the “complexity of required organizational change, lack of budget and lack of leadership support,” according to Accenture.

Important for plan service providers to consider, most respondents in all three countries agreed these barriers “can feasibly be overcome in the next five years.”

Client Service August 24, 2015

Advisers Addressing Health Care Costs in Retirement

Advisers say they are biting the bullet to educate participants about these high costs.
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As many participants fall short on saving for retirement, it could stand to reason that advisers are refraining from addressing the high cost of health care in retirement, but advisers say they are, indeed, addressing this harsh reality with their clients.

“We talk about all aspects of what they will need in retirement,” says Michael Woomer, senior vice president of institutional and retirement plan services at Fort Pitt Capital Group. While a recent report from the National Association of Government Defined Contribution Administrators estimates that a 65-year-old couple retiring today should expect to spend $220,000 on health care over the course of a 20-year retirement, Woomer says the costs could range from $150,000 to $400,000.

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“People basically understand that they will be facing health care costs, but they don’t understand how big the impact will be, so we tell participants how important it is to save as much as they can,” Woomer says.

It is far more important for retirement plan advisers to discuss health care costs in retirement than it is to talk about lifestyle goals, agrees Mary McDougall, a Merrill Lynch financial adviser in St. Paul, Minnesota. The premiums and out-of-pocket expenses that retirees face range from $10,000 to $20,000 a year, she says. “The expenses are a lot more than they expected,” McDougall says.

NEXT: Trend toward high deductible plans

Whether advisers want to address these costs or not, the trend toward high deductible health care plans paired with health savings accounts is bringing the subject of health care costs—pre- and post-retirement—to the fore, says Shelby George, vice president, advisor services, at Manning & Napier in Rochester, New York. Just like the movement from pensions to defined contribution plans, employers are moving toward high deductible health care plans that put more of the onus on participants, and employers “are encouraging advisers to talk about it more in their education materials.”

Advisers are also increasingly encouraging participants to invest in health savings accounts. “This is one area that participants can use to save above and beyond the retirement plan,” Woomer says.

Even for the investors with more than $5 million in liquid assets that Frank Migliazzo, managing director, private wealth advisors at Merrill Lynch in Troy, Michigan, advises, health care costs are a concern. Migliazzo notes that Merrill Lynch research has found that over the last 30 years, health care costs have risen an average of six percentage points above inflation each year.

Merrill Lynch has also found that many people will end up in a nursing home, he notes. For a 65-year-old, there is a 15% chance they will need to be placed in a nursing home. At age 85, that rises to 55%, and at age 90, it increases to 70%. Migliazzo’s clients are also worried about dementia. As a result, many are buying long-term-care insurance.

NEXT: In the client's best interest

“I would hope that advisers are not refraining from having this conversation,” says Scott Laue, a financial adviser with Savant Capital Management in Rockford, Illinois. “As a certified financial planner, we are required to disclose both the good and the bad,” Laue says. “We are finding that if we don’t address health care costs in retirement—particularly for those who want to retire early before Medicare kicks in—we are not doing them a favor. There may be some advisers who don’t think about bringing it up because they assume government programs will take care of everyone, but they don’t. We think it is an important consideration.”

In fact, the report from the National Association of Government Defined Contribution Administrators found that Medicare covers 62% of an individual’s health care costs, but the individual is responsible for the remaining 38%. Together with supplemental insurance averaging $2,232, individuals' total health care outlay each year is $3,937. For couples, it’s $7, 874. Deductible and co-pays are in addition to these costs.

In addition, the association says, citing data from the MetLife Mature Market Institute, many Americans will need long-term care, whether it’s home health care, which averages $98,280 a year; adult day care, which averages $81,900; assisted living, which costs $191,700; a nursing home semi-private room, which costs $202,575; or a nursing home private room, which comes in at $226,300. It is also important to consider that Medicare doesn’t cover long-term care, the association adds.

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