The problem is big. The developed world is aging. Japan went through it first and everyone will follow by 2050. During this time, a much larger population will depend on their own investments or investments made by their employers and governments as their primary sources of income. Also, the number of working people compared to the number of people beyond retirement age will decrease significantly. This number, called the support ratio, is a key indicator for social services agencies and the trend reveals a big problem.
Consider the United States: In 1970 there were 5.3 working people to each retired person, in 2010 the ratio dropped to 4.6. In 2050, it’s projected that there’ll be only 2.6 people working that will support each retiree.
The numbers are similar, if not a little worse, in the Netherlands. The ratio in 1970 was 5.3, dropped to 4 in 2010 and it’s expected to be just 2.1 working people supporting each retiree by 2050 (Coggan, 2011).
These shrinking ratios are already affecting public finances. For the Organization for Economic Cooperation and Development (OECD) countries (read, the developed world), public spending on pension benefits is growing faster than national output, rising from 6.1% of GDP in 1990 to 7% in 2007. It’s forecasted to reach 11.7% of GDP by 2050 (The Economist, 2011).
Rethinking how we manage the process. One of the reasons we’re in this situation is that we’re living longer; thanks to advances in restorative and preventive medicine, better nutrition and an overall better standard of living. Working longer can be seen as a solution to the pension problem or simply one of the consequences of living longer, or both.
But are we applying the same intensity of technological innovation to optimizing pension administration that we do to extending health and life? Or even improving agricultural productivity? Food growth has kept up with increasing populations primarily due to the application of technology. Judging by the level of investment in the pension administration area, I think more can be done.
There are ways that currently available technology can be, and should be, applied to the pension problem. In a recent conversation with Dutch pension administrators who are IBM customers, they described an increasingly consolidated pension industry where they’re called upon to pick up the administration of existing funds. Being able to pull these funds together in a manner that keeps up with the life events of a participant is daunting. And the calculation rules are very complex and based on government regulations that change from time to time. The benefits paid depend on the number of children, marriages, years worked, among many other factors. However, using available Business Rule Management software, the fund keeps up with every major life event in its participants’ lives and factors them into accurately calculating pension benefits.
Before business rules. What was eye opening is their ability to streamline regulatory compliance and turn it into a business advantage using business rules. Before moving to the rules-based system, business analysts picked up the text from the government legislation and created 8000 pages of business description. The information analysts then came along to interpret the 8000 pages into even more pages of detailed software requirements. Finally, the software developers implemented the requirements that led to about 1.5M lines of COBOL code. The sheer amount of repetitive documentation was onerous and unwieldy to the extent that it was impossible to trace how a specific regulation translated into implemented business logic.
After business rules. Today, the system allows business analysts, information analysts and software developers a view into the same set of rules. The 8000 pages of business description have been reduced to 150 pages of precise text described as business rules. These business rules are written in simple natural language style that can be in any major language – here Dutch was used. All parties involved can read and update the rules through special business user tools. In addition the exact same rules, written in Dutch, run in production. Tracing the executing rules to the regulations is a single step process and every single person is more productive.
A concerted effort to apply technology to eliminate laborious processes that have little value add is essential. Rethinking how essential processes can be done better yields a more creative approach to solving the pension morass that is steadily going to get worse if we don’t.
