Comment:
Raising Standards of Pensions Administration
by Jocelyn Blackwell of Dunnett Shaw & Partners
In the course of our work at Dunnett Shaw & Partners (DSP) in the occupational pensions industry, we come across many examples of excellent administration, both in-house and outsourced. Sadly, however, the number of cases where members, employers and trustees are receiving inadequate service from their administrators seems to be on the increase.
Recently both the Pensions Ombudsman and the Occupational Pensions Regulatory
Authority have reported worrying increases in the level of complaints
about administration standards and compliance with legislative requirements.
This may be partly because members are more conscious of the importance
of their pension provision and expect timely, relevant, accurate and clear
information. Pension calculations are becoming ever more complex and many
employers are finding it difficult to cope with the demands of money purchase
schemes where the provision of correct and timely data is vital.
Common themes among the reported problems include:
- delays in paying contributions or in their subsequent investment
- service level agreements and turnaround times that are not observed
- historical data which is incorrect
- a lack of training for administrators and trustees
- poor communications with members,payroll departments, employers and trustees
- out of date IT systems that risk becoming obsolescent
- legal or technical difficulties when administration arrangements are changed
- new administrators taking over data which has not been properly verified.
Initiatives are underway within the pensions industry to develop model administration service contracts and to improve trustee training. In addition, ISO 9000 and Investors in People are widely-accepted quality standards. Add to these the growing statutory regulation and it is clear that the pensions industry is already heavily monitored and regulated. Nonetheless, our experience strongly suggests that standards overall should be better.
Over the last year, we have hosted workshops on administration and service
delivery. A paper suggesting ways of improving standards is available
on our website (www.dunnettshaw.co.uk). We have also carried out a lengthy
programme of discussions with senior figures representing both pension
schemes and providers of third party administration services.
Suggestions that have emerged from the workshops and discussions include:
- the creation of codes of practice, where administrators can choose which modules to adopt, within a structure of “reasonable” service standards
- the specification of standard interfaces for receiving information from payroll systems
- regular and specific reports to employers and trustees on administration performance standards
- model procedures for provider reviews and new system installation projects
- tailored customer service training for administrators
- better training for scheme trustees, who are often unaware of problems with administration until it is too late
- administration must not be seen as a poor relation to other, more exciting activities such as investment management.
These suggestions are relevant to pension practitioners who have outsourced the administration as well as those who carry out the administration in-house. Those who decide to outsource the function must take great care in making the decision. The standard of service available from third party administrators varies widely, so it is definitely a case of reaping what you sow. If cost alone drives the decision, problems may arise, especially if flexible arrangements do not enable mistakes to be rectified cost-effectively.
Irrespective of whether the service is to be reviewed in competition or benchmarked for effectiveness, there is a common approach that needs to be followed. This entails gathering expressions of interest from potential providers, drafting a statement of requirements and an invitation to tender, carrying out site visits, scoring the different bids and then deciding whether there is a case for outsourcing.
In taking the decision, the importance ofcultural fit should not be underestimated. Outsourcing relationships should last for a long time and the requisite amount of care must go into the selection and implementation of systems and procedures. If the decision is made to outsource, then the final stage is the negotiation of contracts or service levels with the preferred provider. Regular audits of the service should be carried out to ensure that both parties are performing their respective duties properly.
It may be a truism but it is nonetheless important to remember that whether administration is carried out in-house or is outsourced, the same duties of care are needed. DSP’s current interest in this area is based on a desire to encourage pension managers to demand high standards so that scheme members are adequately served and protected and that Trustees are not exposed unnecessarily to liability.
Everyone in the pensions industry can help improve standards. DSP is co-ordinating comments and suggestions from all those concerned to maintain high standards. At a recent event sponsored by OPDU (see article 5 of this issue), many from within the industry indicated their willingness to participate in this initiative. A working group will be set up in the next two to three months so that work can begin early in 2002.
The aim is to provide a practical basis to encourage high standards and excellent administration so that members’ expectations are not just met but exceeded.
Jocelyn Blackwell
Managing Director
Dunnett Shaw & Partners Limited
Tel 020 8874 8015
jocelyn.blackwell@dunnettshaw.co.uk
