With local authorities seeking efficiencies across the board, the London Pensions Fund Authority has secured its first administration client outside of the capital
The eight-year contract demonstrates the costs to be cut through leaner data process and online communication for the schemes, with new client Hertfordshire County Council projecting a £1.6m saving from these efficiencies.
The scope to streamline administration is especially wide for multi-employer schemes such as those attached to local government, with the layered communication and data transfer between different employers and employees.
Under the terms of the deal, the LPFA – which offers third-party administration services to other local authorities – has undertaken from April pensions administration and payroll contract with Hertfordshire for its local government scheme and fire-fighter pension schemes.
It shows schemes can use the service level agreement to agree with the provider the savings and quality of service for their members, in order to keep as much of their accumulated assets as possible away from administrative charges.
For the LPFA itself, it demonstrates the opportunities to be gained from councils focused on reducing administrative costs.
The fund has about 80,000 members of its own, for whom it invests about £4bn of funds; and has previously widened its scope to third-party administration services for a number of London boroughs.
In securing the eight-year Hertfordshire pensions administration and payroll contract, the LPFA was able to take advantage of the departure of previous administrator Serco.
According to LPFA chief executive Mike Taylor, Serco moved on to concentrate on the larger volume shared services market currently shaking up local authority administration.
He said: “For a niche provider like ourselves, it was an opportunity to step into the pensions administration area they had previously won.”
LPFA sells on its expertise in administering local government pension schemes – it had previously run training courses for Hertfordshire staff – and up-to-date systems and software.
“As far as Hertfordshire are concerned, they know an expert provider is taken over who is going to be around for quite a long time,” said Taylor.
Patrick Towey, head of specialist accounting at Hertfordshire County Council pointed to “enhancements in service both for members and employer bodies” as crucial to the scheme’s decision.
The open defined benefit scheme has around 30,000 active members, 25,000 pensioners and assets of £1.9bn, according to National Association of Pension Funds figures.
He added: “With less reliance on paperwork and paper-driven processes and moving to online submission of data and so forth, you will get efficiencies out of that.”
Savings
A local government fund like Hertfordshire will have as many as 200 employers attached to it, from district council to colleges to schools.
"What you need from them is all the data on their employees who are in the scheme, their salaries, their hours of work,” said Taylor.
Transferring all of that data electronically eliminates the paper trail and creates instant savings for the scheme.
Employers need to consider their administrator as they would an online bank, added Taylor, with the majority of data transmission and enquiries over the internet.
He said: “We will make savings on what they were spending in the past by effectively using better IT rather than using the same amount of manpower.”
It is vitally important for the scheme to agree in the formation of the service level agreement what systems will be put in place, and what costs can be saved so doing.
These are added to the considerations any scheme should make when appointing a third-party provider:
The level of service afforded to the scheme member.
The quality of the data being gathered for actuarial valuations of the scheme.
The provider’s capability to deal with the data protection issues.
The Hertfordshire contract is a watershed for the LPFA, moving its third-party work for the first time beyond the capital.
There is a limited number of councils which have privatised their administration in the same manner, said Taylor, and future business will depend on how far the organisation can publicise its work.
In order to reassure its own 80,000 members their benefits are being catered to, the secret is separation between the third-party administration team and those managing the LPFA itself.
He said: “What we will demonstrate through our accounting systems is the teams which are looking after the administration are effectively making a surplus, which then goes towards the fixed cost of running of the LPFA team.”
In addition to offsetting everyday scheme management costs, the organisation’s third party work provides valuable experience for those involved, and keeps staff morale high.
He added: “If they see they are part of a successful operation, that gives them more career opportunities, and they are more likely to stay and train.”
