The pressure to reduce spending on pension administration has increased over the past year, with 79 per cent of pension managers and 58 per cent of trustees admitting they now administration costs as a prominent concern, reports Hewitt Associates.

The company's second annual pension administration survey, Hewitt Pension Administration Survey 2010, shows that scheme administrators are still under pressure to do more for less cost, and changes in scheme circumstances, such as the closure to future accrual and succession planning issues, are driving changes in pension administration strategies.

Ian Terry, Pension Administration business development manager at Hewitt Associates, said:
"As the economic downturn has forced companies to tighten their belts, our research clearly shows that this has also been felt by pension schemes. Many remain faced with what may appear to be an impossible task: to reduce costs while improving quality. Simultaneously, trustees and pension scheme managers are operating in a fast-changing UK pension landscape - with many defined benefit schemes closing to future accrual.

"This kind of complexity is leaving many pension schemes struggling to prioritise their limited resource. If pension schemes are to meet these challenges head on, the approach to pension administration must fundamentally change from the traditional model to one which is more customer-centric."

The survey also showed that there is an increasing trend towards outsourcing pension administration to a third party administrator, with 54 per cent of UK schemes taking this route. When it comes to tailoring of these solutions, there has been a shift towards standardised service (with customised solutions down from 63 per cent in 2009 to 50 per cent this year), which Hewitt attributes to more schemes closing to future accrual, or a recognition that bespoke services are more costly.

"Outsourcing is increasingly becoming the preferred option for pension administration, as long as the strategy is well defined and correctly implemented. Choosing the right third party provider is therefore becoming increasingly important. Nearly 60% of participants said they now saw an opportunity to cover all pension functions within a single outsourced solution, providing the four core services of actuarial, administration, investment and pension management," added Terry.

The final key finding in the survey is that of an increased desire for improved service measurement standards, the introduction of web service for members, and the implementation of a full cleansing of data to increase service quality and accuracy.

Terry concluded: "A significant proportion of schemes have no web services for members at all, despite the large potential for better communication and service. The data suggests that pension scheme managers and trustees have recognised the potential in using the web, but relatively few have either taken the plunge or maximised its transactional capability. We expect uptake to increase over the course of the next 12 months."

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