Our panel of experts discuss the current pension administration landscape and the future challenges that administrators and trustees will face in this area
Chair: Margaret Snowdon, OBE, Chair, PASA
Jason Cawley, Senior Client Manager, Ensign Pensions Administration
Daniel Taylor, Head of Administration Services, Premier
Kim Nash, Client Director, PTLUK
Mark Adamson, Regional Director, JLT Benefit Solutions
Dominic Croft, Client Relationship Manager, Profund
Christoph Englisch, Senior Analyst, Hedge Funds, Lyxor
Chair: It is an exciting time at the moment for pensions and particularly for administration. For the first time administrators are now being recognised and the role of administration has suddenly come to the fore. What do administration companies feel about the pensions environment at the moment?
Cawley: My feeling at the moment is that the administration market is exceptionally busy, there is a lot of de-risking project work on the go and we have to make sure that doesn’t impact day-to-day administration. We have a lot of clients considering whether to undertake pension increase exchange exercises, buy in/out, GMP reconciliation and data cleansing. I would argue that the main focus of trustee meetings is on investment and actuarial issues whereas administration slots tend to be towards the end of the agenda.
Taylor: I would echo the sentiments that administration is becoming more project based. Over the past year much of our work has been spent supporting trustees in examining de-risking work. Pressure isn’t coming from a scramble to implement legislative changes but it is coming from clients who want to do things in a very short space of time to capitalise on buyout market opportunities. Most clients now want data rectification or review work completed within a matter of months. I don’t agree with the point about admin currently having a low profile with trustees. Over the past few years the profile of administration has changed markedly and we’re now getting main agenda points at trustee meetings that last for a couple of hours rather than a quick five minutes at the end of the meeting. Trustees are becoming much more informed about the nature and role of administration partly because of their need to do something and partly because of past experience. They know they don’t want more admin issues coming out of the woodwork because they haven’t fully engaged with administrators.
Adamson: I do feel there is a higher level of recognition of administration with many trustees, though not all sadly. There is a strong sign that it is heading in the right direction and it may be that independent trustees are helping with that and it may be that PASA’s work and the recent accreditation launch are all significant steps in the right direction. We must aim for administration to be eventually seen as a profession and not just an occupation or a commodity.
Nash: Administration has been pushed to the back of the agenda for many years and actually as trustees we have probably lost sight of what the pension scheme is there to do, which is to provide benefits to the members. We focus a lot of time on actuarial and investment and actually the member experience has got to be brought more to the fore. This is especially true with the growth of DC where administration is absolutely key. In order to achieve member engagement, members need to have interaction with the administrator and the interaction needs to be positive. All the work we are trying to do on getting members engaged will fall down if the administration is not there to back it up.
Croft: There tends to be far more variety for pension administrators now. When I first entered the industry it was essentially just DB. Now we have DB, DC, hybrid and CARE arrangements, not to mention auto-enrolment. Administrators are expected to do far more now and have far greater knowledge.
Faulkner: There is a greater focus now on member outcomes. We as administrators are having to look more at the end point of various transactions than we have done in the past.
Chair: Are administration standards fit for purpose at the moment or do they need to change?
Nash: It is very variable. The standards across administrators are very different and their approach to it as well is very different. Work also needs to be done about how information is passed back to the trustee. A lot of the administration reports that you have do not tell you how long the transaction process has taken from start to finish, it just focuses on what the administrators have done in their section of the process. What matters to the member is the time it takes to receive their retirement quote. There is still work to be done and I think there needs to be more focus on providing the trustee with information to be able to assess what is really happening. There is nothing more embarrassing than having to write to members stating that the benefits they have received are wrong so we must also focus on quality. Members must have confidence in the system.
Adamson: Within SLAs there is no reason why trustees can’t probe administrators as to what their practice is on chasing a third party. How frequently do administrators do that and how aggressively they do that - all of that information is valid. All processes should be recorded, reported and discussed as part of the role of an administrator. Proactivity is essential and administrators must bring thoughts, ideas and initiatives to trustees and to employers for that matter to seek to move further forward the quality of administration support to members, trustees and employers.
Taylor: I absolutely believe that industry standards are fit for purpose. The industry has focused incredibly heavily on improving standards. Now, we know the right questions to ask and the right solutions to implement. The real reason for criticism is that those standards are not universally adopted or applied. The other problem for the industry is around the issue of standardisation. Independent trustees are given a report from one administrator where all of the quality measures are different from a second administrator. There is absolutely no standardisation on how we measure, how we report and how we respond. We also need to create a dialogue to help develop innovation around member quality so we are the ones promoting it, rather than simply being reactive when our clients complain about something.
Nash: Standardisation would be a nice concept. We see so many admin reports and none of them are the same, none of them provide the same information. The quality also varies. There is a lot of work as a trustee in dealing with the administrator and sometimes it can require a real push to obtain the right admin information.
Faulkner: Obtaining a barometer reading of the members’ views is important as well. Administrators cannot hide behind reports and barometer checks from the membership as to their experience of dealing with administrators is also important.
Cawley: A lot of members do not understand the SLA structure. Trustees need to focus on administration internal controls, system security as well as treating customers fairly in addition to SLAs.
Nash: It is the management of expectation. The member doesn’t know the SLA is 15 days. People want things to be immediate and administration is not up to that point yet.
Faulkner: Where members are writing in however, they don’t generally expect a same day turnaround. They want things to be right. When they email in however, they expect the response to be faster.
Adamson: The PASA accreditation focuses on member outcomes, which are the key criteria by which we should judge success and by which trustees should judge success. As that begins to be rolled out we should start to see a degree of consistency in our approach. A question for the panel - how would we feel as administration providers if there was something centralised that we all had the chance to consult on and contribute to, which did outline consistency of terminology and consistency of measurement processes?
Taylor: That is something I would be in favour of. The only problem is that in the TPA market this is a commercial enterprise and of course you tend to win clients on the degree of innovation and non-standardisation to show where most value can be added. There is a high value in having a core set of standards and targets but they have to be that, they cannot go to the nth degree because it removes that spirit of competition that drives innovation.
Faulkner: You are absolutely right. Not only for that reason but also for the reason that you have to cater for particular nuances and quirks of individual schemes. There are certain things that the Railway Pension Scheme trustees would want in their reports that other trustees might not want, for example.
Cawley: I agree. I produce 10 admin reports every quarter. For one client they want ‘x’ and for the other client they want ‘y’. Flexibility is key in administration reports. Administration reports used to be two to five pages long, now they are growing to 15 to 20 pages.
Taylor: I was at a trustee meeting recently where they said they didn’t need any admin training because they knew enough about it. Those trustees were not from a professional pensions background and, some of them were fairly new, yet all believed they knew enough about administration not to need any further training on the key issues. With the best will in the world non-professional trustees cannot know everything about administration operations, details or how their scheme rules are applied. There seems little motivation to learn more about administration because most trustees already believe they know enough about it. Do you think trustees know enough about admin? Do you think they receive enough training?
Nash: It depends on the trustee board. Some are good and know how the systems work; others need a lot more help. You don’t very often get trustees saying they want administration training. Trustees need to know how to look at admin reports properly and be able to make decisions based on that.
Chair: Looking at auto-enrolment, what are your various experiences surrounding this?
Adamson: This quarter I am focusing very much on auto-enrolment, speaking to clients in the small to medium sized bracket. Typically these are companies with anything from a dozen people right up to perhaps 300 people. Some of these companies are approaching their staging date very rapidly whereas others are two or three years away. Some employers have a very clear idea of what auto-enrolment is all about, what their responsibilities are and how they plan to carry these out. Certain employers may be a little over confident about this in my opinion but nevertheless they have a view and that is good. However the majority do not understand what the impact of auto-enrolment will be from a cost point of view, from a responsibility and communication point of view and an administration point of view. Some do not know when their staging date is either. There is a capacity crunch coming in the market.
Faulkner: As an industry we are not as ready as we might have been for auto-enrolment. The industry has been too inward looking in trying to make sure that it is prepared and ready to handle the process required for auto-enrolment. I think the marketplace was looking for more proactive guidance from ourselves.
Chair: Is there some conflict with SMEs in what they are going to need for auto-enrolment and what they are going to be able to pay?
Croft: I think that is true. From talking to a few medium sized and smaller employers, in order to cover the costs of auto-enrolment they are suggesting the possibility of introducing pay freezes. If that is the case then it kind of makes the whole thing about auto-enrolment counter-productive to a certain degree.
Taylor: Companies are completely underestimating the number of decisions that they need to make in the auto-enrolment process. They need to find delivery vehicles, they need to make decisions about budgets and costs as well as making decisions about the level of provision. These are all massive pieces of work. I agree that the real danger is in capacity. A lot of employers are making the assumption that they can use one of the big insurers for provision and we have already seen clear indications from them that they are not accepting schemes or employers who have not planned well enough in advance.
Faulkner: If employers are not ready then ultimately that will have a significant impact on administrators. One of the ways to make auto-enrolment work efficiently is to make sure that wherever possible you are dealing with automated interfaces, you are able to handle auto-enrolled new entrants and can handle opt-ins and opt-outs. If the employers have come to a decision late in terms of what their pension provision will be, then the chances are that the interface will not be in place in time and the scheme will not run efficiently.
Croft: It is interesting and immensely encouraging that the typical opt-out rate amongst large employers is less than 10 per cent. When contribution levels go up in years two, three and four are people still going to carry on contributing or will it be a step too far and will they start to opt-out?
Chair: Do you think that will mean the capacity crunch will disappear?
Croft: I think if high numbers of people start opting out it will force compulsion to come in.
Chair: What we are saying here is that administration should be and is moving towards being more about outcomes, and we are saying that auto-enrolment should be the same. The master trust model could help with this situation.
Nash: PTL have been doing a lot of work with master trusts and that model does work as it gives you that added layer of governance. I will be interested to see what happens with the master trust market, whether or not it has to consolidate at some point. There a lot of providers out there at the moment trying to win business but it is yet to be seen whether that is sustainable. The concern that we have as trustees from an auto-enrolment point of view is that people don’t understand pensions at all.
Chair: That is a massive challenge that we have to deal with over the next year. Turning to the data aspect now, this has come more and more to the fore over the last couple of years, in terms of cleaning up data. Do we have a general sense that data now is cleaner or is there a long way to go?
Cawley: Having accurate data is absolutely fundamental. There are a lot of historical problems with member data on our systems at the moment and most of this stems from data inherited at take-on. A vast number of data cleansing exercises are taking place to improve data stored on administration systems. What I think has really helped over the last year is the regulator’s guidance on common data and this has actually brought the issue to trustee boards attentions, auto-enrolment has come in and overtaken that a little bit however. Perhaps some guidelines around conditional data would be helpful as well.
Faulkner: You’re right, data has been put on the agenda and there is now a lot of activity where DB schemes are looking at the potential for buy-ins and buyouts for parts or the whole of their schemes. The quality of data is key here, because in the absence of confidence in that data your buyout insurer will put a hefty premium on the costs of taking on that liability. In terms of getting the best deal for members, having good data in the first place is key.
Croft: I have big concerns about the quality of data. From my experience of working with in-house administrators and TPAs, the greater issues tend to be more with TPAs, especially when one TPA wins business from another TPA and the data is inaccurate or poor. Where I have the biggest concerns is if the data is inaccurate then it stands to reason that there must be so many benefits being paid that are inaccurate. If the conditional data is not correct then how can we know with certainty that the benefits are always correct? It also means that if the data is not accurate then the automation of calculations is not as efficient as it should be. This means that, there has to be some manual intervention and therefore there is a real possibility of human error. Millions of pounds must have been paid incorrectly over the years. We are seeing a growing number of complaints going to TPAS and the Pensions Ombudsman where there have been overpayments and this does not do us any favours as administrators at all.
Faulkner: When the decision is taken for schemes to change provider, this is often used as an opportunity to validate data. Quite often changing provider involves a great deal of data checking.
Adamson: I agree with that point. If administrators have caused the data problem then they should pay to correct the problem. If the administrator has received incorrect data from a ceding provider or an employer then no it shouldn’t. To me that is simple and straightforward.
Croft: If you were aware that the data you received was very poor or incomplete and you were not able to properly rectify that data because the ceding TPA was not being particularly helpful, would you reject that business?
Adamson: No I wouldn’t, but I would expect the trustees to work with us to find a route to correct whatever the issue is. Problems must be identified very early on through validation processes on test data as part of the transition and then we must report back to the trustees with these issues. Trustees should put pressure on ceding providers to rectify problems if there are any concerning data.
Nash: Data issues are a key area where the relationship between the trustees and the administrator can turn very sour. That is typically where you would see the most arguments. Administrators taking new data on maybe have not been that proactive and have just sat on that data for 10 to 15 years, but this should have been corrected as soon as it came in. Why should trustees have to pay for data corrections that the administrator has sat on for a long time – this should have been done right at the beginning of taking the scheme on.
Taylor: I don’t think all data issues come down to poor administration. Some of them are legitimately down to historic operational models that didn’t take into account future legislative or compliance requirements. For example we see schemes that have never split out pre and post 97 tranches because scheme rules and client agreements never stated it was a requirement. This wasn’t a wilful neglect it was just lazy short-sightedness
Chair: It does seem generally accepted across the board that data needs to be clean because it is going to help achieve the right member outcomes.
Croft: Having been critical of the accuracy of data, I would still say that if you look at where we are now to where we were two or three years ago, I think we are in a far better place and that has to be positive.
Chair: One thing that I hear is that the web is the answer for member self-service and other areas of administration. What are the panel’s views on this?
Taylor: Things are becoming more web focused because of how we live our lives and how we interact with all of our service providers. As a society we now live a lot of our lives online and expect to transact more through the web. We all recognise that there are huge operational benefits to be gained from the web, especially in terms of member self-service. This can aid both the quality of the service that members receive and the quality of data that is exchanged. The problem is getting members to use web solutions and to engage fully with them. Engagement with the web is always relatively low when compared to paper-based communication
Faulkner: The take up of digital banking seems to have been pretty successful over the last five years or so, but we have not been able to replicate that in pensions and we have an awful long way to go. It is also a difficult nut to crack in relation to the different membership statuses within a scheme.
Chair: Are trustees interested in member self-service?
Nash: Definitely. The difficulty at the moment is the budgets that you have for it. It is not just setting up the web portal which is important, it is the constant delivering of the message to members to say the portal is there for them to use and that needs to be consistent. There are some really great tools out there and the pensions barrier currently within the industry needs to be removed. People have very limited financial knowledge and we need to go back to basics.
Cawley: I wholeheartedly agree with all these points. We are testing video conference calling via the web as well to try and get more interest and member buy-in for the web especially among overseas members.
Nash: There is still a reluctance to embrace the web. Trustee meeting packs are still coming in paper copy. Trustee boards are not used to dealing with technology but slowly some are realising that they must communicate with people how they want to be communicated with rather than how we want to communicate with them.
Chair: Complaints are sadly on the increase in administration. What can we do about this and what is the likely impact on our businesses?
Faulkner: Whether the rise in complaints means that quality is on the decrease I’m not entirely sure. People nowadays are increasingly encouraged to complain about everything in every walk of life because they are more aware and more savvy about the information they are receiving than they were in the past. We have to react to this as administrators and make sure their experience in making that complaint is as positive in terms of the outcome as it can be. I don’t think there is a general decrease in standards because I believe there is a greater focus on quality but more complaints are nonetheless coming through.
Taylor: Inappropriate and complex legislation also has a part to play and administrators find certain parts of the regulatory framework hard to implement, explain and manage. In these areas, and I’m specifically thinking about administering divorce cases, complaints will in all likelihood continue to rise unless there is a significant simplification of standards and requirements. I also predict complaints increasing around some of the more creative methods of de-risking such as ETVs and PIEs.
Cawley: As an industry our complaint management process probably needs to be improved and we need to ensure that we treat customers fairly. We don’t act on complaints as fast as we could.
Nash: On the trustee side a lot of complaints can be unfounded. Members can expect something different to the service they are going to be delivered, so I don’t think there is a rise in the number of complaints due to quality being poorer. I believe it is often a mismanagement of expectations.
Croft: That’s a good point. People will always find a reason to complain. If we find after the first year or two of auto-enrolment that the stock market takes a turn for the worse and people receive their benefit statements and find they have less money than they have contributed, I think we could face a real surge in complaints as a result of this.
Adamson: It is our responsibility to make sure that we analyse these complaints. Improved communication with trustees and members is key to this.
Chair: Pension liberation is with us and there has been quite a bit of publicity surrounding the issue. What has been everyone’s experience so far?
Adamson: Like all administrators I’m sure, we are getting plenty examples of this coming through. We have tried to be proactive about pensions liberation and put in place processes and procedures for our administrators to follow and have provided them with training to make sure they understand the context of this issue. This does not totally stop everything slipping through the net sadly. We need some sort of industry position and cross-business co-operation as well. I hesitate to suggest a code of practice but that is probably what we need. Trustees must be put in a position where they have a legal right to be able to put their proof of the validity of transfer above the member’s right to transfer. The trustee has to be given that priority.
Faulkner: We should be sharing our experiences within the industry as well in order to combat pensions liberation in order to ensure adequate protection for the member and for the trustee.
Cawley: They are very difficult to spot and members do not understand pension liberation schemes.
Croft: Is it that they don’t understand or they don’t always want to understand? I think that the individual has to take a certain amount of responsibility in these cases.
Cawley: Members see the opportunity of having cash in hand and in this economic climate they are only too willing to agree to liberation exercises.
Faulkner: There is a risk that an individual who has been subject to a pension liberation transfer will come back in say two years time and say that we should have protected them better than we did.
Croft: If the trustees do feel that pension liberation is occurring, and the legislation was then changed to say that the transfer cannot go ahead until all checks have been completed, and it then transpires that it is a valid scheme at which time the stock market has taken a plunge, will the trustees or whoever have to make good the fall in transfer value?
Taylor: This is a good opportunity to review our practice around pension transfers because we are only going to see an increase in transfers taking place with the onset of pot follows member.
Chair: Kim, as a trustee who is in jeopardy if a transfer is made to the wrong place, what are your thoughts on pensions liberation and what can be done?
Nash: A lot of the reliance is placed on the administrator. It puts us in a very difficult position because we have to provide the transfer value. If the member still wants to proceed with the transfer, then we can’t protect the member from themselves. The procedures that administrators have put in place however are very robust.
Chair: Is there generally a move from in-house to outsourced administration?
Faulkner: There continues to be a move. It is driven by a desire to cope better with legislation, manage costs better and achieve a transference of risk.
Taylor: There is a direct correlation between scheme closures and outsourcing as well. As more schemes close, ultimately employers think why are we managing our own in-house administration potentially for all those people who do not work for us anymore.
Croft: Generally I would agree with that. But there has been some movement the other way as well. As software providers, we have also seen a growing appetite for the hosting of clients; administration platforms, whether it be in-house or TPA.
Chair: Mark, as a PASA board member could you speak a little about the PASA accreditation and what might happen next?
Adamson: It is a major milestone for PASA and for the industry too, that we reached the point where both the Royal Mail in-house team and Ensign Pensions as a TPA have become the first pensions administration providers to achieve PASA accreditation. At the moment we have another half a dozen or so in-house teams and TPAs who will be going through the accreditation process early in 2014 and PASA has used the experience with Royal Mail and Ensign to refine its approach to make sure the process works as effectively as possible. So we have the next tranche coming through and a further tranche coming through after that. There is also good evidence that the wider industry is taking note of PASA accreditation, with a number of new members signing up since the first accreditations were awarded in October.
Chair: What do you see as the main pressures in administration over the next couple of years?
Adamson: GMP reconciliations, contracting out finishing, auto-enrolment, complaints, de-risking and data strategies are the main headline issues.
Cawley: Cost control will be a major issue as clients drive the cost of administration down, improving member experience is a must and improving the quality of members of staff is also key within administration teams.
Faulkner: In the DC space there will be a greater demand for proactive communication with members, especially in relation to lifestyle strategies, to ensure that they properly understand the changing risk profile of their pension pots as they move nearer to retirement.
