What pension schemes can do to cope with the capacity crunch

Industry experts have long warned that we could be headed for a capacity crunch as pension schemes, administrators and providers gear up to tackle industry initiatives such as pensions dashboards, GMP equalisation and ESG reporting.

New polling suggests the capacity crunch may already be here. The vast majority – 78 per cent – of pension schemes and corporates who joined a recent WTW dashboards webinar say there is already a capacity crunch in the pensions industry which is impacting on schemes being able to deliver their strategic objectives.

Even without the regulatory changes the pensions industry is currently experiencing, demographic shifts would be creating more work. Volumes of people either retiring or likely to die are increasing exponentially over the next five to ten years, says Matt Dodds, chief growth officer at Capita Pensions Solutions.

Quite a lot of project work that is happening at the moment is defined benefit (DB) focused, points out Geraldine Brassett, director in WTW’s technology and administration solutions business.

Brassett points out: “Of course, the pool of experienced DB people is diminishing. And so we’re looking for people with very specific, technical expertise. But the new generation of DB administrators is not growing at the same speed, because we’ve now got this big book of active defined contribution (DC).”

It’s encouraging that pension schemes recognise the crunch is already happening, says Dodds. “Once people realise there’s a problem, they tend to get their mind onto the next challenge: what do we do? What options are there?”

So, what can pension schemes and the broader industry do to address the capacity crunch?

How to cope with the capacity crunch 

Look after your existing talent

At the moment, lots of talented administrators and other pensions experts are being poached for higher salaries, in an intensification of the war for talent.

The pandemic was a game-changer, says Brassett. “Most third-party administrators are pretty flexible on location, so now it’s a completely open market,” she explains. “It’s a bit of a double-edged sword, because you might attract more people because of flexible working, but then you’re more vulnerable to losing people, as well.”

“We have seen an escalation in salaries, particularly in contracts and project-based work,” says Kim Gubler, founder of Kim Gubler Consulting and chair of the Pensions Administration Standards Association (PASA).

The level of job-changing happening at the moment isn’t sustainable, says Dodds. Administrators should focus on looking after people and thinking creatively about how to retain them, he suggests. “The world has changed. People want proper flexibility and for work to fit in with their lives more than ever. So, what can you offer?”

For example, Gubler is seeing administrators enabling people to work a four-day week or offering them the chance to work a five-day week in compressed hours.

Start fishing in different talent pools

There are only so many administrators in the UK – and tempting more people into the profession is a perennial challenge. Companies should take advantage of the diminishing importance of geographic boundaries, as technology throws open the door to a far bigger pool of global talent.

As Dodds says: “There are tons of massively talented, well-educated and motivated people who would love to work in UK pensions admin. Ultimately [international workers] are not quite as easy to employ. But actually, if we could get our heads around the fact that you can be sat anywhere in the UK doing work on a screen and no one minds too much, it shouldn’t be that hard to get the same kind of thinking towards okay, that person is sat in Poland, that person is sat in the Maldives.”

Data security may be a concern, but technology should make these issues surmountable, Dodds argues.

Using technology to do things differently

Speaking of technology: pension schemes should review what they’re currently producing and whether this could be made more efficient. “Some pension schemes still insist on sending paper payslips”, says Dodds, when most members don’t want to receive them. “There’s lots of things we do like that where we are just not helping ourselves.”

Technology could also ultimately empower members to self-serve, says Brassett. After all, a key objective of pensions dashboard is to engage members with their pensions.

In the same WTW dashboards webinar, 81 per cent of schemes and corporates said they believe the introduction of pensions dashboards will drive greater digital engagement amongst members.

Brassett explains: “If members can go in and complete their forms online and upload their birth certificates and suchlike, that provides a much better member experience, and also improves data. It is obviously a big piece of work to implement that technology, but it’s part of a solution, I think.”

Stop firefighting

From GMP equalisation to buyouts and pension dashboards, pension schemes could find themselves working on a plethora of separate data projects. Instead of tackling one challenge at a time, see all these data projects as one project, suggests Gubler. The headline cost may sound expensive, but you will save money by working through one big data project with your administrator, rather than going through several separate data exercises.

Don’t miss your take-off slot

Pension schemes should not just rely on the pension dashboards connection date they have been given by the Pensions Regulator. When preparing for dashboards, administrators are likely to allocate pension schemes specific slots within their project plans, says Gubler. “Don’t miss your take-off slot,” she warns.

Brassett adds: “I would be asking my administrator: when are you planning to do my implementation? What does that look like? Trustees need to talk to their administrator, understand their slot and understand the decisions they would need to make. Because it’s all about planning. That sounds really simple, but it is the only way we’re going to be successful is if with all the resources that are available in the industry, we all plan really carefully, collaborate well and communicate.”