Meeting Evolving Member Expectations: Today’s members benchmark their service experiences against other industries, which are often far ahead of the pension sector technologically. “Member expectations are higher than ever before

Both members and employers engage with companies that provide superior (digital) experiences,” Edsart explains. Failing to modernize risks reduces member trust and satisfaction. Outdated technology limits the ability to modernize business processes, improve digital member engagement, and better decision-making by using data analytics. This drive for a better member experience often requires the adoption of cloud computing, especially as organizations start to use AI and machine learning.

While improving the member experience is crucial, modernization is equally about achieving “operational excellence.” This means optimizing processes, increasing efficiency, reducing waste, and ultimately delivering better service at a reasonable cost. Modern systems allow for automation and streamlined workflows that are impossible with outdated technology.

In the past, many pension plans have preferred developing and managing their administration systems in-house. “Plans used to do a lot in-house because of the complexity of their business, and so they could control the service they provided,” says Edsart.

However, more plans are partnering with third-party service providers and vendors in recent years. “The rate of technological change is high,” Edsart observes. “Plans are clearly considering their ability to keep pace with this change. That said, we still observe that plans that use commercial off-the-shelf solutions require a significant degree of customization”—a quarter of plans implementing a commercial off-the-shelf solution still required more than 90% customization.

The specific approach to modernization is also changing. The traditional “Big Bang approach” – a total replacement often taking 5-10 years and costing large amounts – is an immense project.

Edsart notes a shift in mindset with plans that modernized more recently: “Many plans have modernized their systems in a way, so it is easier to continually update, avoiding future big-bang modernizations.” This points to moving to a more flexible, adaptable system design that supports continually improving instead of less frequent, more extensive replacements.

Despite the trend towards vendors, the picture is not that simple. Our data shows:

• 58% of plans still rely on their own developed systems. Within this group:
  • 43% built or are building the system primarily using internal resources.
  • 15% initially had their “in-house” system built from scratch by a third-party vendor.
• 40% use an existing third-party platform.

Opting for a primarily in-house build offers the most control, but Edsart cautions it can be “resource-intensive,” requiring ongoing internal skills development. Furthermore, tracking the actual cost and timeline can be challenging compared to vendor contracts.

Choosing a third-party vendor uses their size, efficiency, and experience from past projects. However, our data reveals that an ‘off-the-shelf’ solution is rare in pension administration. On average, third-party systems need 52% customization to meet individual pension funds’ unique business rules and regulatory requirements.

Interestingly, no single third-party vendor leads the market across the board, likely due to the high degree of unique business rules requiring custom solutions. We find that organizations commonly utilize systems from more than five different vendors. For specific insights into the most popular systems among pension peers, please reach out to your CEM Relationship Manager.

Our data confirms that modernizing legacy pension systems is no longer optional but necessary. While the optimal path—whether building in-house, partnering with vendors, or a combination—varies, significant customization remains a key factor. Regardless of the approach, pension funds will continue to face challenges related to cost, resources, customization, and the rapid pace of technological change.

At CEM, we believe in the power of shared insights and peer learning. By understanding the trends, costs, challenges, and successes revealed through our comprehensive data, pension funds can make more informed decisions on their modernization journeys.