Retirement is often described as a carefree and happy time, offering the opportunity to relax, travel, enjoy family and friends, and even take up a new hobby. It should be a stress free period after a life of work.
But too often, once salary-based income streams stop and the decumulation stage begins, many retirees experience financial anxiety. Starting to dip into savings and dip into assets, especially during bear markets or periods of volatility, raises worried questions about whether life will outlast savings. Increasingly, without an additional source of income, the answer is “yes”.
It makes sense that a third of all workers and retirees surveyed in a 2022 EBRI Pension Confidence Survey consider guaranteed products an important part of retirement planning.
A similar number indicated that income stability was more important than wealth preservation. And Pew Research finds that about three in five employees would be willing to take more out of their salary each month to ensure a defined stream of income.
Yet less than 10% of 401(k) plans include a guaranteed retirement income offer. Why is this the case when it seems like an obvious choice? Are there misperceptions about the ability to use these assets more widely?
The answer to this last question is a fairly clear “yes”.
Regulatory changes brought about by the SECURE Act (Setting Every Community Up For Retirement Enhancement Act) have significantly reduced the risks associated with offering annuity-type products. Ongoing legislation under the Securing a Strong Retirement Act (known as Secure Act 2.0) expands the ability to include annuities in retirement funds and makes it easier for retirees to defer income streams, protecting as they age (and potentially live longer than expected) and tapping into their savings. These are all positive and welcome changes.
But if regulatory burdens have been removed and assets are in demand, why haven’t these products caught on?
Maintenance Challenges
In large part, the slow adoption of guaranteed income products is due to technology and the historical inability of many plan managers to manage these assets. A lack of back-end infrastructure to support the products and limitations in how they can be showcased on participants’ web portals are key barriers to wider adoption. Some archivists cannot currently manage annuity-based solutions on their platforms.
Additionally, people are changing jobs more frequently, driving the need for portability, or the ability to smoothly transfer and value retirement assets between providers. This requires that the new plan be able to manage all transferred assets. As noted above, some archivists have no capacity to service guaranteed income. Others can support these assets, but only by investing in their own company’s proprietary products. Add to the list of challenges the ability to obtain and maintain data connectivity between multiple actors, and then track and account for a variety of underlying collateral (with different underlying structures). All these needs require a significant technological investment that only a few archivists have made.
But there is a more efficient and scalable way to deliver, distribute and manage guaranteed income solutions. This solution is middleware.
Middleware: the efficient and scalable solution
The middleware technology provides connectivity between plan providers, product providers, and archivists, regardless of other service platforms used. It offers a one-to-many revenue market for data connections, assessments, monitoring, compute, and distribution. Because the platform is agnostic and able to handle all types of annuities and work with any record keeping platform, it promotes seamless portability of an investment and its associated benefits. Whether a participant wants to switch plans or transfer their plan to an IRA, a plan changes registrar, or the product is discontinued, middleware can help accurately and appropriately account for and maintain accrued collateral by the participant.
SS&C’s Retirement Income Computing and Compensation (RICC) middleware platform is the industry-leading middleware option. Launched in 2008, it can be used by SS&C TRAC customers or those using other recordkeeping technology platforms. In addition to the features listed above, the benefits also include online annuity account opening capabilities. SS&C Retirement Income Solutions’ broader suite of digital applications integrates with the RICC to streamline a participant’s investment in annuities. Efficient and fast participant-friendly tools educate, inform and model potential benefits and risks. The data-powered microsites provide targeted tools and calculations to help providers and plan members understand their options, the cost of their choices, and the impact of any selection on future revenue streams.
RICC was created by experts who combine solid expertise in pension record keeping and technological knowledge. It is an advanced and flexible middleware platform that provides an essential solution for archivists who want to include guaranteed income products on their platforms and for retirement income product providers who are looking for a network of connected archivists they can distribute their solutions.
With the other retirement technology lines from RICC and SS&C, greater availability of guaranteed income products and a financially secure retirement can become a more achievable reality for everyone.
To learn more, download our eBook Lifetime income solutions: Changing the face of retirement.