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The desire to
focus on core business is the main driver for companies to outsource
pensions administration, according to new research by Aon Consulting.
Almost a fifth (19 per cent) of employers cited the need to focus
on their core competencies rather than their pension funds as their
primary motivation for outsourcing pension scheme administration.
This finding, Aon says, contradicts the common assertion that controlling
costs is the primary motivation behind the decision to outsource.
Aon surveyed more than 100 senior executives responsible for defined
benefit (DB) scheme arrangements in the UK, finding that over two
thirds of employers have outsourced their pension administration
for DB schemes. Among those who offered a defined contribution (DC)
scheme alongside their DB arrangements, 15 per cent retained both
DB and DC scheme administration in-house, 12 per cent retained just
DB in-house, and four per cent administered their DC schemes in-house
whilst outsourcing DB.
Seventeen per cent of employers cited the lack of in-house resources
as a reason for outsourcing, and the same percentage cited the lack
of appropriate expertise. The need to control the cost of administration
was cited as a reason by 13 per cent of those surveyed.
Stuart Heatley, managing director of administration, said; “The
results suggest that third-party administration continues to be
an attractive path for many schemes. It is clear that financial
benefits can be gained through appointing a third-party administrator
(TPA). However, it is the non-financial benefits a TPA can bring
that are arguably the most important.”
Heatley referenced the increasingly complex pensions environment
as another reason for outsourcing. “However, despite the advantages,
outsourced administration isn’t the favoured route for all
schemes,” he added.
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Pensions Age July 2008
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