There is a whole raft of different advisers involved in running a pension scheme: actuaries, consultants, lawyers, investment managers and pension administrators. On the whole they are listened to, but some of us seem to be ignored.

The modern pension administrator

Any firm that is serious about providing a good quality pension administration service, whether it is in-house or using a third party, needs to use good people. The modern pension administrator is intelligent, well qualified, well trained and has a good understanding of compliance with legislation. The main features of their development include:

A large proportion of administrators are graduates.

A growing number of administrators have a professional qualification or are studying towards one.

Training is a necessity for a pension administrator in all aspects of their work; technical, systems or soft skills.

There is a significant number of pension administrators who are key to the running of national and regional pension groups such as the PMI, NAPF and SPC.

All of these strings to the bow of the administrator are played together when dealing with clients and pension scheme members.

As the cost of pensions increases, and while market uncertainty remains, pension schemes and their sponsors are increasingly looking to de-risk through investment strategy and scheme design in a bid to stabilise costs going forward. The main advisers are generally involved in discussions with the sponsoring companies and trustees, however very rarely are the pension scheme administrators asked for their opinion on how the running of the scheme will be affected. Although certain costs will be reduced, it often comes at price, namely, the potential risks of member confidence, general administration costs, systems costs and other risks from outside agencies causing delays. These all add up to cause the trustees unexpected headaches.

For example, when some schemes changed their contracting out basis from salary related (COSR) to mixed benefits (COMB) this caused confusion and complications. The change meant that the underpinning of defined benefits became a money purchase ‘pot’ instead of the defined benefit Guaranteed Minimum Pension or ‘Reference Scheme’ style test. This raised certain issues:

a) Members were unsure about these changes and what these pots of money were, as they had been told they were getting a defined benefit. This complicated early retirement significantly.

b) The change was rolled out without the National Insurance Contribution Office having their system working properly.

c) The companies who had opted to make this change to the method of contracting out were under the impression that they would be receiving more rebates and ultimately reducing their costs. However, the nightmares which sometimes unfolded didn’t always justify these so called cost savings.

For those of us still left to administer these schemes, we are receiving rebates for tax years long in the past and requests for over-payments back to NICO. Some trustees may believe that their schemes have run smoothly following this change, however behind the scenes it has been the administrators who have been busy making sure that this is the case.

Cost reduction and governance

The key drivers for trustees today are reduction in costs, driven by the sponsoring company; and governance, driven by The Pensions Regulator:

Cost: Are complicated scheme changes which tweak contribution rates a false economy? When things are going wrong or when members don’t understand how things work, the trustees will not be happy about added fees being charged for the extra work undertaken to explain the changes and to straighten the issues out.

Governance: Governance is intended to control risk, however complicating design can increase risk in several ways:

a) Member confidence is a risk and complicated change confuses members who worry about the security of their benefits.

b) Can all the parties involved cope with the changes ?

c) Are the systems in place? If not will there be a delay in getting them in place? If systems are not in place the chances are that benefit calculations will be processed manually which increases the chance of error. This could all mean that any potential savings are nothing but a deferral of cost.

Pension administrators are pension professionals who are good at their job, so I urge all who look at their pension scheme to involve these unsung heroes in all discussions, please listen to them!

Robert Wakefield is an associate in the Leeds office and Julie Walker is a pensions administrator in the Glasgow office at Barnett Waddingham

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