A combination of new technology and pension reform has prompted alliances between existing players and the entrance of new players.
The traditionally sleepy Dutch market for pension administration is undergoing unprecedented upheaval. Traditional incumbent players face the double challenge of replacing legacy systems with newer technologies and adapting to the upcoming pension changes. Some of the larger traditional players in the market have responded by teaming up. Achmea and PGB, which together serve 50 pension funds and 1.2m members, bought pension administration provider InAdmin Riskco last year. The two providers will both use InAdmin’s pensions software and share further development costs while keeping the rest of their admin business, such as their service centres and websites, separate.
MN (2m members) and PGGM (4.4m members) recently agreed on a similar deal whereby MN, the pension administrator of metal scheme PMT and the smaller fund for merchant shipping Koopvaardij, will start using PGGM’s in-house software.
The co-operation agreement is supposed to bring cost savings for both providers. It should also help MN, whose own in-house efforts to develop a new admin system had been plagued by setbacks, to achieve timely implementation of the new pension contract. APG, the Netherlands’ largest pension administrator serving a total of 4.7m members, is to spend up to €100m on admin up to 2026, the firm’s then-CEO Gerard van Olphen said last year. At about the same time, APG’s head of IT Wim Henk Steenpoorte said APG may build the required software through an alliance with others. But Steenpoorte, who will leave his post this year, also explicitly left open the possibility of buying new defined contribution (DC) software from an external party as APG makes the switch to a DC-based system. “We could adjust our existing systems, but because the new contract is so fundamentally different to what we have now, I’m not sure this is the best option,” he said at the time.
The impending pension changes and the growing importance of state-of-the-art IT systems have already led to the appearance of several new players on the Dutch market for pension administration. The new arrival making most headlines was French IT firm Capgemini, which replaced TKP as the administrator of retail sector scheme Detailhandel at the start of this year. Capgemini said last year that it strives to reduce annual pension admin costs per member to €15 in the foreseeable future. This is less than half the €35-45 that APG and PGGM expect to charge after the pension transition.
The latest new entrant to the admin sector is IT firm Visma Idella, the new provider of Waterbouw, the fund for the dredging industry. The company has been a software provider for pension funds with an independent administration but is expanding into pension administration with Waterbouw as its first client. Idella is a Dutch firm by origin which was acquired by Norwegian IT firm Visma in 2018.
“Because Visma also acquired Raet, another IT consultancy specialised in HR business process outsourcing, around the same time, we now are a unique firm which is capable of offering a more comprehensive service package to pension funds,” says Visma Idella’s managing director Pauline Frens.
Visma Idella is an example of “a software vendor moving up the food chain”, notes Arno IJmker, managing partner at Quint, a consultancy that helps pension funds in selecting new administration and software providers. “The increasing degrees of automation means they are able to perform tasks that previously had to be performed manually. This will put the business model of classic pension administrators under severe pressure. Further consolidation of administrators will be inevitable. In fact, the PGGM/MN and Achmea/ PGB deals illustrate that this is already happening.”
However, Visma Idella is not planning to offer a full-service pension administration package. “We are a technology company specialised in straight-through processing, and we want to stick to what we’re good at. We do not offer services that involve human interaction – for example, customer service or contacts with the regulator. We call this a third way, in between full servicing and independent administration, that we can offer for a price between €20 and €35 per member, depending on the complexity and scalability,” says Frens.
Such “hybrid forms of pension administration” are fast becoming the new norm, says IJmker. “Pension funds no longer outsource all business outsourcing to one specific player, as IT systems are increasingly modular in nature,” he says. “Pension funds and their administrators can increasingly pick and choose specific software components and build or order add-ons to fit their specific needs.”
Traditionally, the Dutch market for pension administration has had high barriers to entry because of the prevalence of defined-benefit (DB) arrangements which are often complex in nature. But with the switch to a DC system by 2027, this is about to change. “The convergence to DC means that administration systems will start to look more similar. This should naturally foster competition,” says IJmker, who notes that in theory at least, there is ample room for challengers. “There are still thousands of people working in the pension administration business in the Netherlands. There is currently not a lot of competition and many tasks are still being performed manually.” Add to this the need for pension administrators to invest considerable amounts of money in upgrading their IT systems to make them suitable for a more individual, DC-based pension system, and the opportunities for new entrants look even more compelling. “Not all administrators will deem such investments viable,” says IJmker. This is good news for newcomers with strong IT capabilities, such as Capgemini, which wants to grow to serve 4m participants and Visma Idella.
We have to grow organically or via co-operation with incumbents,” says Frens, who is not shy of sharing her ambitions. “We would love to be the future technology partner for large pension administrators such as APG,” she says. Visma Idella has hired 35 new software developers this year to fulfil its growth ambitions. But a handful of other (foreign) players are also seizing on the switch to DC to make plans to enter the Dutch pension market, Europe’s second-largest, with 19m participants (including non-active members).
“We are being bombarded with calls from foreign parties who want to enter the Dutch market” ~ Arno IJmker
“Foreign players often have more experience with DC arrangements than the Dutch incumbents, and this can work to their advantage,” IJmker says. “We are being bombarded with calls from foreign parties who want to enter the Dutch market since they know we execute searches for software providers and admin providers for Dutch pension funds.”
The UK’s Smart Pensions is the only firm to have explicitly announced a move into the Netherlands. Dan McLaughlin, director international at Smart, told trade publication Pensioen Pro last year his firm will appoint a country manager in the Netherlands and has ambitions to establish a permanent local presence. According to IJmker, several other foreign players are eyeing the Dutch market. “A total of nine firms have voiced interest to us. These include Atos, a company similar to Capgemini, and several software firms from the UK, Canada, Australia, Bulgaria and Denmark.” Lack of a launching customer With all their differences, these companies have one thing in common – they still all lack a launch client. And they will find it hard to find one, says IJmker. “A prospective launching partner must be willing to take the risk of working together with a new partner and make a significant upfront investment,” he says. Detailhandel, for example, invested €5m in its new admin system developed by Capgemini. And finding a launching customer does not guarantee eventual success, says IJmker. “Capgemini [which did not respond to an interview request for this article] still hasn’t announced a second client. There tends to be a lot of scepticism about newcomers in the Dutch pension sector. Therefore, we believe the barrier to entry for foreign players is still high, despite the added value they can bring to the market.”
Published in INVESTMENT & PENSIONS EUROPE SEPTEMBER 2021