Outsourcing admin: What to look out for

Many schemes have outsourced their benefits administration, such as the £180.4m Baptists Pension Scheme, which switched to an external administrator in 2015.

Strong project management and ensuring clear channels of communication across all parties are critical to a smooth transition

Stuart Reid, Hymans Robertson

Once a scheme has made that move, at some point it may change providers. Lloyds Banking Group, for example, switched from Equiniti to Willis Towers Watson for the administration of a number of its schemes in October last year.

While outsourcing does not remove a scheme’s responsibilities, it “means you don’t have to worry about headaches like resourcing, investing in non-core technology, or the challenge of complying with a fast-changing regulatory environment”, said Damian Magee, head of business development at PS Administration.

But whether a scheme is outsourcing administration for the first time, or switching administrators, the transition is not always plain sailing. 

Allow enough time for implementation

Daniel Taylor, client director at administrator Trafalgar House, said some schemes might try to transfer data from the employer to the administrator, but have not built interfaces that are compatible between the two systems.

This problem is often discovered later on, said Taylor. “Often the outbound systems require a lot of reconfiguration to get those data feeds in a format that can be used by the administrator,” he explained.

Paul Latimer, head of pension administration at consultancy Barnett Waddingham, noted that on the corporate side, there are a lot of schemes moving to third-party administration services. However “there are still a lot of in-house arrangements there in place”, particularly for larger schemes, he added.

Source: Aon Hewitt

When switching administration, “the new provider’s got to pick up all that knowledge and train their people” to understand all the nuances of a new scheme, Latimer said.

Depending on the size of the scheme, it is important to make sure there is quite a long implementation period, he added, noting that the new administrator “will be handed a load of member data, so they’ve got to convert that into their systems” while checking that it is fit for purpose.

“One of the worst things that you can find is that you set up all your benefit calculations, and you find a systemic error in what the previous administrators have done,” Latimer said.

Focus on strong project management

He stressed that, with larger implementations, “you just want a very strong project manager, who’s got a very clear timetable”.

A scheme could hire a project manager specifically for a transition, Latimer noted, whose principal role would be to make sure everything is done on time, while looking at the costs and the work capacity of everybody involved.

Stuart Reid, senior technical consultant at Hymans Robertson, said: “Strong project management and ensuring clear channels of communication across all parties… are critical to a smooth transition.”

Taylor agreed that hiring an overall project manager could be beneficial, depending on the scale of the transfer.

Often, the projects are led by the receiving administrator, and “they only really have visibility and oversight of their own resources and their own work streams”.

But an overall project manager could sit above that, and manage multiple stakeholders including the receiving administrator, the ceding administrator and the sponsor, Taylor noted.

However, “cost is often the barrier to somebody appointing that overall project manager... so scale is really the driver”, he said.

Trustee involvement

Changes to improve scheme efficiency or manage cost, such as incentive exercises and outsourcing, are also often led by the employer, according to Magee.

“Trustees are not always the first driver on outsourcing,” he said, noting that corporate reorganisations, mergers or acquisitions can also influence employer decisions to outsource.

“This can be challenging for trustees,” he added. Magee said it is crucial to take control of the transition process and “have a clear understanding of the requirements for success, before advisers or external parties introduce their own frameworks”. 

When it comes to oversight of pensions administration, trustees are not usually expected to involve themselves with the day-to-day matters, said Reid.

"This is normally achieved via a combination of review meetings between the trustees and provider and creating regular administration reports,” which tends to be done on a quarterly basis, depending on the scheme, he added.