Pensions admin: No longer the Cinderella function

“There is so much going on in pensions at the moment that it all affects administration,” said Lesley Carline, a director at KGC Associates, when she spoke at a Pension Playpen webinar this morning.   

Carline began by explaining how administration is no longer the Cinderella of the pensions arena and how it has changed in the past 30 years. 

While it is still focused on member record-keeping, there is so much more data now demanded of administrators.

Administrators are also no longer process-driven operatives, she said. Though they have detailed and specific knowledge, they also have to be more than a pensions expert. They need an understanding of legal boundaries, in part due to compliance requirements.

“Administrators have to realise when they’re working through a case that actually does have to go to a legal expert,” says Carline, “because they can no longer make the decision themselves.” 

This is complicated further by dual regulatory oversight: some in the trust-based environment under the Pensions Regulator, the rest under the auspices of the Financial Conduct Authority.  

Never in the field of processing pensions…

Yet the shortage of administrators that has been biting the sector for years has become more acute with the pandemic.  

“One of the reasons that we need pensions administrators more than ever is not only because things are changing, but we are actually losing quite a bit of DB expertise. 

“DB schemes are mature and the people that have been running them are also mature and may well have a nice DB pension to retire on.”

As a result, the industry is losing DB expertise at a rate of knots and this, along with other factors, is changing the role of the administrator.

“You have to be communications experts as we have much more engagement with members,” said Carline.

“And because there’s so much change, we now have to have project managers, business analysts and systems experts. We have all this additional resource in administration, yet — and please remember this — administration is a low-margin business.”

Providing members with nudges is done based on the data administrators tend to. As compliance increases, so administrators must provide more information and tailor it for the requests, said Carline. The chair’s statement, value for money, etc must all be evidenced, and that evidence comes from administrators.

“We have to be much more commercial as administrators, because someone has to pay for these projects and additional work,” said Carline. 

“We have to think about how to cover the cost of these projects, because the other thing people forget sometimes is that administration is a business, not a charity.” 

Lesley Carline, director, KGC Associates

A career with a future

Carline said she has been speaking about the perfect storm coming within administration for a number of years, because in that time the cost of admin was actually forced down. 

Now, with so much changing, so many projects coming through, changes to the working practices and people retiring from the industry and moving to better jobs elsewhere, there is a shortage of resource. 

That has encouraged the industry to take stock and invest in its people. It has reappraised the role of administrators and is increasingly using apprenticeships and promoting administration as a career path to school leavers, graduates and also to those outside the sector from a customer care background.

Reluctant adoption – the story of pensions tech

While technology has shaped the development of pensions admin, it has been treated as the poor cousin, with schemes unwilling to pay commercial rates and administration companies doing things on the cheap. 

“There’s been an awful lot of shortsightedness by providers and trustees in this area,” said Carline, “but it comes down to the low margins in administration because people haven’t paid enough for administration.” 

Stephen Goddard, chief executive of HS Trustees, agreed that as an administrator there is a constant battle to control costs. 

“You have a constant battle to innovate and give trustees and schemes better quality systems. But there’s always that ceiling of cost. There will be a cost benefit analysis undertaken by the board and even if the technology is fantastic, there is little benefit for the administrator to make that investment. 

“If you’re running a [third-party administrator], or even an insurance company, the return on investment is really important.”

But new technology is being absorbed rapidly, said Carline. One company is using it for guaranteed minimum pensions, dashboard and derisking exercises, where the artificial intelligence is doing a data cleanse. 

It has so far been achieving an 85 per cent match, but is doing the work of 15 minutes by an administrator in as many seconds. 

Still a place for the human touch

The dashboard is just the start, said Carline. The way people retire is becoming more complex because they are not simply retiring, but phasing, or continuing to work part time, etc. 

In time, she said she expects that pensions administration will be part of a holistic financial ecosystem. 

“We’ve seen open banking and, with dashboards coming, we need open pensions, really,” said Carline. 

“People have multiple pensions and retirement savings is complex. Administrators are beginning to use AI and machine-learning for low-grade bulk processing of data.”

But even then, while the robots crunch the numbers, there will be even more demand for good pensions administrators. 

Technology will automate more, but just as we are seeing in other areas of financial services, this releases workers with technical knowledge to assist customers directly.