The U.S. retirement system faces a decelerating revenue growth outlook because of fee pressure, underfunded retirement plans and an aging population, structural challenges that are unlikely to ease, according to a report released Tuesday by the PwC Market Research Center.
Today, retirement firms are responding to these challenges by matching fee pressure with cost reductions, and some have opted to consolidate. PwC notes, however, that continuous consolidation has further reinforced price competition.
Smaller firms are under even greater pressure from thin margins. According to PwC, the ability to excel in today’s environment is closely tied to how well firms can generate scale for distribution, innovate with new technologies and expand benefit offerings to help address gaps in the market.
Consolidation is one approach that has helped generate efficiencies needed to reinvest around these opportunities.
Even so, the significant constraint on profitability restricts how firms can adapt. Those that can’t challenge their status quo will find it harder to gain market share. They face eroding competitive differentiation as their offerings become commoditized.
The report looks at how retirement firms can step around financial pressures to reinvest for growth. It suggests how they can reframe the experience or innovate to foster higher levels of plan participation.