Administration system transitions can be risky, but this has not stopped one of the industry’s largest taking place next month, while other schemes are outsourcing their services in an increasingly competitive environment for in-house teams.
Nearly 60 per cent of schemes using third-party administrators cite technology as a key benefit of outsourcing, according to scheme administrator Capita.
Admin pricing has alwaysbeen keen, and sometimes unhealthily so
Margaret Snowdon, PASA
Telecoms giant BT’s £49.3bn pension scheme is moving the data for its roughly 297,000 members “to a new and improved system”, which will be in place from December 1 this year.
Meanwhile, the £45.3bn Royal Bank of Scotland Group Pension Fund has outsourced administration to Willis Towers Watson.
Notes fields are ‘the black hole of pensions admin’
Transitions consist mainly of ‘mapping’ data from one system to the next, but there can be legacy issues. One common source of problems are notes fields, said Daniel Taylor, director at third-party administrator Trafalgar House.
“It’s the black hole of pensions administration,” he said. “You put anything you want into those notes. It’s not restricted in any way. It can’t be standardised.”
In some schemes, such fields contain important liability information, for example relating to underpins or the extent of spouses’ benefits, but they can even include the opinion of an administrator on a member’s personal circumstances.
“Under [General Data Protection Regulation] you need to be very careful what’s stored in those fields, so that’s an awful lot of analysis,” said Taylor.
Maximise the return from the transition
Automation is often a key objective of an administration transition. If data has not been validated, said Ian McQuade, director at governance specialists Muse Advisory, this can mean that too many cases still need manual intervention.
The migration could also involve opening up web access for the first time, which would generate enquiries from members and put strain on the scheme's website.
But although the benefits of transitioning take time to materialise, he argued that the efficiency it drives can be significant.
Planning a data transfer is also “the ideal time to take a hard look at data quality to maximise the return from the change”, said Margaret Snowdon, who chairs the Pensions Administration Standards Association.
She advised trustees and administrators to ensure the transition happens when it will be least intrusive, “and any slippage in normal standards is planned so it is where it will have least impact on members”.
Member experience can suffer
This is not always how members experience such moves, however. The RBS Group scheme recently outsourced its in-house administration to Willis Towers Watson. The RBSG Pensioners’ Association said that there was a surge in enquiries to about 250 per cent of “what is considered the norm”.
“While there was always going to be a surge, this may go a long way in explaining some of the unsatisfactory experiences which have been encountered to date,” the association's website reads.
RBSGPA said the bank had been planning the move for a while. “Inevitably, we are encountering teething problems but we shall work our way through these.”
Former in-house staff have been recruited by the new administrators, said the RBSGPA. RBS did not return requests for comment.
Taylor said a spike in enquiries in the first three months of a transition is normal.
“You could expect to receive 50 per cent of a year’s enquiry” in that time, he noted, due to the uncertainty it creates and the associated communication refreshing members’ interest in their benefits. However, this can be planned for, he added.
In-house teams struggle to compete
A number of factors can drive schemes to outsource to TPAs. Taylor named technology and risk, saying TPAs have a bigger pool of resources.
TfL adds online self-service in admin refresh
The Transport for London pension fund is introducing a new administration system that will give members a self-service option, something experts say can help reduce costs in the long term.
Snowdon cited the war for talent. “There is competition for good skilled people, and in-house schemes sometimes find it difficult to offer attractive career paths to retain those skills,” she said.
She also pointed out that “admin pricing has always been keen, and sometimes unhealthily so”.
The demand for experienced defined benefit administrators has created upward pressure on salaries, argued Taylor.
He agreed that market competition between TPAs has been fierce, but the withdrawal of some companies from the administration sector has led to a contraction of supply.
These two factors, he said, are currently driving up price.
