UK - Straight Though Processing (STP) to streamline expanding defined contribution (DC) pension schemes is the future, according to five industry major players.
Investment Managers Straight-through Processing (IMSDG) recently ran a pilot system which electronically transmitted transaction requests, prices and confirmations directly between administrators and fund managers.
By removing the human error factor associated with usual paper communications, Watson Wyatt senior consultant, Claire Hall, who was involved in the pilot, said the risks could be significantly lowered.
Hall added: “Data passes directly in to the fund manager’s system; they can place the deal straight away so trading times are much more consolidated.”
Risk reduction, not cost saving, was the pilot scheme's objective, said Hall.
As the volume of DC scheme assets grow, Hall said more sophisticated systems would be needed to contain these more operationally expensive pension plans.
Currently, Watson Wyatt and Barclays Global Investors (BGI) are the only players to go live on the system so far.
Hall added: “This will become common standard in the industry. This is where we have wanted to be for many years. In two or three year’s time, we won’t even ask the question, it’s how we’ll be expected to work.”
Hall confirmed that all Watson Wyatt clients with Legal & General Investment Management would be using the system by the beginning of July 2007, with other fund managers switching to the system when working with the firm's clients.
Head of STP Initiatives at Idea Group, Steve Wallace, said: “STP has been talked about for many years and has been widely recognised as essential for the development of DC pension arrangements in the UK. At long last it has happened.”
IMSDG is a forum of organisations including BGI, Legal & General Investment Management,Capita Hartshead, Mercer Human Resource Consulting and Watson Wyatt, under the guidance of Idea Group and SWIFT.
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