Barnet sacks Capita and joins LGPS shared arrangement

The contract has now been awarded to the West Yorkshire Pension Fund, which operates a shared service arrangement for itself and fellow LGPS funds Lincolnshire and Hounslow.

First reported by the Barnet Borough Times and confirmed by councillors, the terminated contract brings to a close seven years of Capita Employee benefits administration, during which the scheme has been fined by the Pensions Regulator and twice been the victim of fraud by people working for Capita at the time.

The £1.1bn scheme was firstnotified by TPR of a £1,000 fine over its failure to submit its 2016 employer return information on time. It became the first public service pension scheme in the country to be fined by the regulator.

Many of the issues in the outsourced market relate to chronic underinvestment over a number of years. If any specialist LGPS provider is to be successful it will need to invest

John Reeve, Cosan Consulting

A recovery plan was put in place to improve data quality and ensure the timely preparation of annual benefit statements, but in October 2018 employer delays submitting information led to a failure to produce 447 statements on time and a further breach. It also emerged that Capita had not paid employer contributions into the scheme due from a separate contract with the council.

Concerns had been raised that the scheme might miss the deadline for submitting its 2019 actuarial valuation, but while data was still problematic the council looks to be on track to meet the time limit.

In July 2019 it was revealed that the regulator had issued the scheme with an improvement notice over lingering problems, and the scheme had threatened to fire Capita if its requirements were not met.

Shared services pool grows

Now the council's pensions administration will be handled by West Yorkshire, which combined its services with Lincolnshire in 2015 and in 2018 took in Hounslow – also a former Capita client.

The new arrangement will reportedly save the council £2,000 a year in costs, but Arjun Mittra, a Labour councillor who has been closely involved in scrutinising Capita's many contracts with Barnet, said the main measure of success will be improved data quality.

"As far as I understand it, there is still a problem with the data quality... it's likely to pass the triennial review but the data still isn't at as good a standard as it ought to be," he said.

Describing the Conservative-led council's outsourcing project as driven by "the political ideology of the administration, which is to cut, privatise and diminish", he said that Labour would have explored a return to in-house administration, but that a consortium of other local authorities is "a far better option than having Capita, to be honest".

However, he also raised concerns about the process used for the decision: "There wasn't much consultation with us, it didn't seem like a proper competitive tender".

Data improvement requires investment

Data is a perennial problem for many pension schemes in both the private and public sectors, with quality of member records hindering the industry's attempts at self-modernisation.

However, simply firing an administrator is unlikely to solve schemes' headaches in isolation, according to John Reeve, director at Cosan Consulting.

"Moving poor data from one provider to another is unlikely to solve anything. It is important to resolve issues alongside any transition," he said, adding that issues will take "time and resource" to rectify, whether this is done by the incumbent, a new provider or a specialist.

"We would always recommend working with the incumbent provider to try to resolve issues rather than just move a problem from provider to provider. Capita are currently implementing a significant number of changes to improve the service that their clients receive. However, in this case it seems that Capita have not been able to resolve the issues in a manner and timeframe that fits Barnet’s requirements and strategy," he continued.

Mr Reeve said the lack of capacity in the administration market may lead to greater pooling of resources among large schemes, but warned that this is no free lunch.

"Many of the issues in the outsourced market relate to chronic underinvestment over a number of years. If any specialist LGPS provider is to be successful it will need to invest in the service and continue to invest to maintain the service at the level required by members and plan managers."

However, a willingness to invest does appear to be stirring within some trustee boards and LGPS committees.

Ian McQuade, CEO of Muse Advisory, said: "In our experience, those that are unhappy are looking for high quality administration services now. They're making decisions based on the quality of the service being delivered, the quality of the people they're meeting, the quality of the technology that's in place - price is no longer the driver and that is a change."

He said that while schemes are well advised to remedy critical data problems before transferring to a new provider, switching gives them the ability to insist on high levels of automation and service from the beginning of the contract: "You can have the best investment the best actuaries... if you do all of that great stuff and the interface with the members is poor, that's the only bit that matters."

Regulator steps into market

In response to the strategic importance of administration in projects such as defined benefit derisking and the dashboard compliance, TPR is now attempting to build one-to-one relationships with pensions administrators it considers to be of critical importance, in a voluntary extension of the supervision regime it has already introduced for the largest schemes in the UK.

The watchdog is now making enquiries at the top 75 outsourcing companies and in-house teams in the country, to identify those with which it will seek further engagement. It said the final list could be ready by the end of this year.

The regulator has identified key areas of focus for its interaction with strategically important administration teams, including trustee relationship management, handling of client transitions, data quality controls, due diligence on scams, member communications, resourcing and training, business continuity and cyber resilience.

“Administrators have a critical role in securing good outcomes for savers,” the watchdog’s executive director for regulatory policy, David Fairs, told the Pensions Administration Standards Agency’s annual conference earlier in February. “Over the next couple of years, we will be looking to build strong relationships with a handful of strategically important administrators."

The watchdog will expect to hold regular meetings with those companies or in-house teams assessed as being of strategic importance, although it conceded that the regime will have to be voluntary.

Mr Reeve said this intervention is "just the latest in a trend towards treating administration as more important".

"Trustees and plan managers are already holding administrators more to account as the ills of the past are becoming more obvious," he said, cautioning: "We hope that the regulator's involvement will not encourage trustees and plan managers to take knee-jerk decisions to change providers without assessing what is causing the problem with the service received and whether the current provider can resolve them. Constant ‘churn’ in the market is not helpful to anyone and discourages investment by the providers who cannot rely on future income to justify the investment needed to improve the service."