Daniel Jacobson on why the time has come for trustees to put administration higher up on their agendas

The pensions administration industry has long argued that good administration is at the heart of a well-run pension scheme, but for many years these assertions have gone unheeded, with most schemes tending to focus their energies more on investment and actuarial matters. However, times have changed and now, in light of The Pensions Regulator's recent pronouncements on administration and record keeping, administration is being looked at as never before.

The Regulator has stated that inaccurate and missing data can have serious cost implications for schemes and says research has shown that validated records could lead to potential savings of £20,000 per pensioner. As cost is key for virtually all pension schemes, administrators can expect a greater focus on their activities, both in terms of what they do for the schemes they look after, but also for what they charge for doing so.

It is clear that now is the time for trustee boards to engage more with their administrators. The good administrator should already be working with its clients, as the deadline for action resulting from the Regulator's guidance on common data items looms ever closer, with audits expected to begin shortly after. It is also clear that this is just the tip of the iceberg and guidance on conditional data is expected to follow once the Regulator has had time to review the initial audits.
With this in mind, the Regulator is expecting schemes to review data quality on a regular basis and that trustees will have access to an annual report on the quality of their data. This ties in with good stewardship and trustees should look to have their administrator attend, as an absolute minimum, one trustee meeting per year. It would also seem prudent that service review meetings take place between the relevant members of the trustee board and the administrator. This is also probably the right time for both schemes and their administrators to review the content and relevance of the stewardship reporting produced. The one page summary of membership figures which has been classed as a stewardship report in the past is not sufficient. More information is required about membership through-put, adherence to contractual and regulatory requirements, member satisfaction, any complaint or Internal Dispute Resolution Procedure cases and contributions received during the reporting period.

Such reporting will become even more crucial with the advent of auto- enrolment. Many employers are still unprepared for this and the prospect of members having to be enrolled, un-enrolled (should the member choose to subsequently opt-out) and re-enrolled into pension arrangements on a periodic basis understandably fills them with a degree of trepidation.

This is typical of how the focus on administration is shifting – there is an increasing shift to incorporate project-based work. Auto-enrolment is a good example of this and, as the economy continues to remain uncertain, pension scheme sponsors are now taking a keen interest in pension arrangements and the impact these have on their balance sheets, along with the future benefits for which they are liable. As employer covenants have never been as important as they currently are, so the employer may well seek to crystallise their liabilities.

Many schemes are looking to change their benefit structures, transitioning from an open DB arrangement to one which is closed to new entrants and from that point moving through the various stages of closing to future accrual, establishing a CARE or DC arrangement, seeking to de-risk through enhanced transfer value, pension increase exchange and buy-in exercises and from there, looking to wind-up the DB arrange-ment through buying out the remaining liabilities.

All of these stages require the experience of the administrator, with the trustee relying upon them as never before. However, this increased reliance also leads to increased scrutiny and accountability and, as these projects inevitably work to challenging timescales, the administrator needs to ensure that they work smarter to ensure that not only are these timescales met whilst continuing to deliver a good level of day-to-day administrative service, but also that all these services deliver value for money for the trustee board.

Daniel Jacobson is client manager at MNPA

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