Professional Pensions Admin Panel October 09
The trend towards outsourcing continues. What, in your opinion, are the key reasons behind the drive towards outsourcing now and in the future? How do you think these objectives are being reflected in employers and trustees requirements in relation to reportable measures and performance penalties?
Cost reduction plays a significant part in these decisions and in the current economic climate outsourcing allows both a reduction in head count and the ability to focus on the organisation’s key product or service, whilst benefitting from a transference of risk to the new provider. In addition, as the regulatory burden upon administrators increases, employers and trustees may wish to work with third-party specialists to ensure these requirements are met.
Whilst the development of strong working relationships is key to employer and trustee confidence, control can be retained through the adoption of wider and more rigorous KPI’s, with the imposition of financial penalties/enhancements for under/over performance. Helpful reporting tools can provide a summary of performance against specified qualitative and quantitative indicators, together with details of any contractual implications arising from these.
What do you think are the biggest challenges for companies that currently have in-house teams and how would you address them?
Pensions have a much-increased visibility with even the non-financial pages of the press regularly running stories on matters related to pension provision. Consequently, there are challenges providing a service in an increasingly knowledgeable, time-conscious and demanding market. As well as ever-increasing regulation, IT and data security have rapidly moved up the priority list, as has the need for resource flexibility to deal with rising numbers of specialist projects as employers and trustees explore ways of controlling financial risk, from data management exercises through scheme design changes to buy-in/out of liabilities.. Finally there are ever-increasing cost pressures and the impact of the current economic climate to consider.
There is no one size fits all solution and a balance needs to be struck between meeting the desires and requirements of members, regulatory authorities, trustees and perhaps crucially, employers, often the driving force in considering outsourcing.
Risk is always an important consideration in any outsourcing decision. What do you believe employers and trustees see as the key risks?
A perceived loss of control is often seen as a fundamental risk as is loss of knowledge if existing staff chose not to transfer. There is also a risk of alienating the membership, who may have concerns about the quality of service going forward. In any outsourcing, there will be questions about the job security of the existing team, regardless of whether they are absorbed into other areas of the organisation, or transfer to the new supplier.
A report on internal controls, such as the AAF01/06, can go some way to providing reassurance to trustees and employers. It is also important to ensure that there is a good fit in the values of the outsourcing organisation with that of their selected provider. This will hopefully allay fears over the service experienced by members and encourage existing staff to transfer to the new provider, hence retaining knowledge.
There is a possibility that we will see significant change in employers approach to pension provision as a consequence of the introduction of auto enrolment and personal accounts. To what extent, if any, do you think the proposed changes will impact outsourcing decisions or prompt employers and trustees to consider changing providers?
Almost certainly, the introduction of auto-enrolment and personal accounts will increase administrative costs, with the additional burden of a further layer of pension provision and increased engagement required with HR and payroll departments.
As costs increase in one area, cost savings are likely to be sought in other areas and this, along with the perceived complexity of continued legislative changes and increased administrative requirements, could prompt a review of current administrative arrangements and the delegating of the burden of adhering to these to a third party.
by Daniel Jacobson
Client Manager