The BT Pension Scheme is moving the administration for its 300,000-member scheme in-house next year, not long into a contract extension with a third-party provider.
The telecoms giant and its £49.3bn scheme, which has a £13.9bn funding hole, are engaged on multiple pension fronts.
To replace a provider after three years of a new contract is highly unusual. You’d expect it to go through, especially for a scheme that size
Daniel Taylor, Trafalgar House
With a court hearing just finished, a judgment is pending on whether the scheme rules allow a switch from retail to consumer price index for the largest section of the defined benefit scheme.
The company is also undertaking a broad pensions review, consulting on a proposal to close the scheme – which was changed to career average revalued earnings in April 2009 – to accrual for managers from next April. Non-managerial staff would either face the same changes or, under an alternative proposal, continue to accrue benefits but at a reduced rate and with higher contributions.
Changes are now also happening on the administration side. BTPS said the scheme and long-standing third-party administrator Accenture have decided to part ways. The pension administration services are proposed to transfer to a new BTPS subsidiary from May 1 2018.
The scheme’s decision to pull administration in-house comes just two years into an eight-year contract extension with Accenture. The consulting and outsourcing company’s contract was agreed on new terms in 2015, after an existing 15-year relationship.
Historically, BT was the administrator of the scheme; Accenture became involved when BT decided to outsource certain of the administration activities, which ultimately led to BT staff moving across to Accenture, according to a BTPS spokesperson.
The spokesperson for BTPS, who also spoke on behalf of Accenture, said: “The BTPS Trustee aspires to provide a best-in-class service to the scheme’s members, and the strategy for delivering pensions administration services is regularly reviewed by the trustee.”
The spokesperson added: “Following the successful implementation of a new platform, which will further enhance the member experience, BTPS and Accenture have mutually agreed to transition the administration of the scheme to BTPS over the course of 2018 where it will be fully integrated as part of the BTPS family.”
The spokesperson said that “the companies will continue to work together to ensure a smooth transfer and to maintain the current service to members during the transition”.
Contract termination is unusual, say experts
Daniel Taylor, director at administration company Trafalgar House, said pulling administration in-house “puts [BTPS] in more control from a cost and service perspective”.
However, the timing of the switch is uncommon, he added. “To replace a provider after three years of a new contract is highly unusual. You’d expect it to go through, especially for a scheme that size.”
Taylor said the complexity and risk involved in changing provider means that often about 12 months of strategy planning are necessary.
“Trustees will usually wait until the end of the term,” but “you do see it [sometimes] in terms of a significant failure of the service”.
Tracy Weller, partner at consultancy Hymans Robertson, also found the scheme’s move to drop its long-term administrator Accenture shortly into a contract extension surprising.
Large scheme admin transitions show need for careful planning
Administration system transitions can be risky, but this has not stopped one of the industry’s largest taking place recently, while other schemes are outsourcing their services in an increasingly competitive environment for in-house teams.
“I would see that as quite unusual,” Weller said. “That probably indicates that they’ve been struggling with some part of the service that’s been delivered… and maybe they want to maintain that control.”
She added that generally, the direction of travel has been to outsource, she said, because DB schemes are shrinking.
BT’s proposal to close its scheme to accrual for part of the workforce would accelerate this development.
“It’s more difficult for in-house operations to maintain technical expertise and provide career paths as well… So it’s against the grain. But this is obviously a huge scheme and those drivers were probably less of a problem.”
Philippa Childs, national secretary of trade union Prospect, which represents BT managers, said there had been “whisperings” around administration. There was a question as to whether or not Accenture would deliver some of the proposed changes to the scheme, such as the ability to take pre and post-2009 accrual separately, she said.
The spokesperson for the scheme, also responding for Accenture, denied that the service was brought in-house because of problems with the quality of service, or that there were concerns over Accenture’s ability to deliver some of the changes proposed under the pensions review.
