Pensions Age admin roundtable 2004

A number of key events have taken place since the Pensions Age Administration Panel last put their heads together at London’s Cafe Royal: the Profund issue; the enactment of the Finance Bill; as well as further progress with the Pensions Bill. What impact will all of this have on the future administration of UK pension schemes?

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Chairman: Robert Birmingham is president of the Society of Pension Consultants, the managing director of benefits consulting company Entegria and a member of the executive management team of parent organisation Hogg Robinson plc. Birmingham has extensive experience in providing strategic advice to employers and pension scheme trustees

Jon Saunders is head of third party client services and consulting at software provider and outsourcer, Marlborough Stirling, which has over 15 years experience in providing solutions for the servicing of life, pensions, protection and investment business

Finlay Ross is joint chief executive of Aquila Group Holdings, which provides pension software across the pensions market. Previously he had been responsible for Watson Wyatt's administration outsourcing business

Geraldine Brassett is a pensions delivery specialist at Hewitt Bacon & Woodrow. Brassett's role is varied but she is currently leading the programme to interpret the new legislative requirements from the Revenue and the DWP

Clive Hallworth is chief executive of P3 Corporate Pensions Software. His background is in employee benefit consultancy/administration, having worked for Clerical Medical, Godwins (now Aon), Mercer’s and Willis

Chairman: One of the biggest issues of the last few months relates to Profund – which had claimed to be the market leader, both in the TPA market and outside it. Following a period of uncertainty for the provider, the Jardine Lloyd Thompson Group (JLT) has acquired the principal assets through a newly established subsidiary, Profund Solutions Limited. What impact will this have on the administration marketplace?

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Hallworth: First of all, I have to say I am a great fan of some of the Profund staff – there is a lot of difference between talking about a system and the staff working on that system. Having said that, the problems the administration side of our business has suffered from in recent years are largely down to a lack of a replacement for Profund’s Classic product.

Profund Classic is a DOS-based system with a Windows front-end, but which is still used extensively within the industry. It has no proprietary database and too many user defineable fields that should be mandatory, causing no end of problems when it comes to the quality of data.

Secondly, Profund’s oPen product has many shortfalls and we know the company was working on a replacement (oPen 2) beforehand.

Also, we know that some of Profund’s clients have not been offered new contracts with JLT. Where will this leave the big TPAs who nearly all use Profund? Surely they have to change systems, draw up new agreements and get all their schemes across onto new platforms? In the meantime, we have to feel sorry for the staff who have to try and continue to provide a good quality admin service, as best they can, with the systems in place.

Brassett: As a TPA using Profund, we are continuing discussions with representatives of Profund Solutions and JLT in relation to entering into a contract with them. Our clients can also be assured that we are already running the most recent version of oPen (version 1.5). This meets the needs of all our existing pension delivery clients and we are not currently dependent on any outstanding functionality from Profund.

Ross: I think if you look at the pensions administration industry as a whole, and particularly look towards what is happening in 2006, there was already a lot to be done in terms of system changes before the Profund issue came to light. But now it has been thrown into the mix that one of the major players is going through so much change and it is going to cause an awful lot of extra strain on the industry.

A lot will also depend on what JLT decides to do, but I can’t see how the number of people who are potentially wanting to choose a new system, and do it quickly, are going to be able to do that – there just won’t be the capacity.

Saunders: We sit on the edge of this as we have never gone into Profund’s space, although in the past we have looked at ways in which we could, or should, be competing with them. Following this turn of events, however, we will be reviewing our position and, if it turns out there is a capacity problem, we may look at moving into the market.

Brassett: All in all the market is livening up, and if more schemes start looking at the outsourcing option, there may not actually be enough providers.

Hallworth: Also, can the big TPAs handle new clients, as well as trying to shift their existing schemes onto new platforms?

Brassett: They probably can but, question is, will it become a marketplace where TPAs can choose to be very selective?

Hallworth: I think if scheme sponsors are wise they will change their systems and remain in-house, because in my opinion it is going to take the big TPAs many years to sort this out. The quality of service is bound to suffer during this period.

Saunders: I think 2006 is key as not too many people are going to want to do much to solve other problems when they already have a raft of problems they need to deal with between now and then – but it will be interesting to see what ensues afterwards.

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Simplification

Chairman: In May you all indicated that the industry had the ability and resources to deliver pensions simplification, but were concerned that clients would see the deferred 2006 date as a reason not to start making decisions. Has this been the case?

Saunders: Many of our clients have actually used this as an opportunity to take a step back and reflect on their longer term strategies – do they still want to be in the market, or do they want to focus on other things? The perception, therefore, is that some have taken their foot off the gas and may need a push, while others have started to widen the scope of what they are looking at. Either way, we remain confident that we will be able to deliver within the timescales.

Brassett: What we have seen is that clients have really thought about their executives and have put plans in place to deal with them. Now that is done, they are turning their minds to the high level decisions that need to be made about the rest of their workforce. What many of them haven’t done, though, is think about the detail of what their plans will actually look like.

I am also pleased that clients are finally recognising that some of these decisions are very difficult and they shouldn’t firm up what their designs are until they have spoken to their administration provider. I find that quite encouraging.

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Investment

Chairman: New legislation will widen investment choice for members – how might this affect things?

Hallworth: I think there is a danger that “Joe and Josephine Public” will treat their pensions in the same way as other stocks and shares by switching funds regularly, based on short-term market conditions. They will no longer take the long-term view that pension savings require. To prevent this, schemes need to put some controls in place to try and restrict those decision-making processes to be more long-term.

It also concerns me that ordinary members of the public are going to have to turn into investment experts, which has always been my problem with DC. So I would personally like to see more lifestyle options, based around some sound investment structuring, so that members only have to decide upon the level of risk they want to take, not which shares to buy.

Ross: Looking from a company point of view, what it does do is bring the advice side of things to the fore – people won’t necessarily continuously switch funds but they will be dependent on good advice as what they go into from the start, they will often stick with.

Saunders: I think there is going to be a split, though, between those that read their annual statements and those that don’t even attempt to understand them.

Brassett: There are issues going back as well as issues going forward. I don’t think it is a technology problem – most admin systems can deal with multiple managers and multiple funds – but there are processing issues that should be addressed, for example, how do we process this money more efficiently, how do we get this money invested more quickly?

If it could bring about some review about how investments were managed in the past and how they should be managed in the future, that would be a good thing.

Ross: I wouldn’t disagree that most modern platforms can handle numerous funds, but I think it depends on the level of automation you are dealing with. For example, the fund managers have entered the market as they don’t want to sit behind the providers – a minority think think they need to be bundled providers in order to get the business. But with open architecture this isn’t the case and they can sit behind – if there is multi-manager choice, then the consultants will automatically choose you if you are a good manager. So I think that helps fund managers.

But, from a technology point of view, I think there is still an issue between the TPAs/in-house schemes, and the fund managers. The interface works but don’t tell me it is totally efficient across the board – there are around 100 TPAs, 100s of fund managers and they are all sending faxes across to each other and that is a classic position where you need a clearing house in the middle.

As DC grows, if you have many schemes, all with different trading cycles – particularly if you are out of the market for some days with some switches – you better be as automated as you can.

Hallworth: Admin is so much easier to handle if all of your funds are under one manager. When doing cross manager switches, the cash management becomes a nightmare.

Ross: Well, you are out of the market for one thing. In the nitty-gritty there is quite a lot of administration and technology investment to be made to automate that interface between the providers and the fund managers, because if that is not done before DC becomes totally prevalent, then that in itself will be quite a big cost.

Hallworth: From what I have seen, it seems that while the pensions industry is quite slow in terms of its technological advancement, the fund management industry is even worse!

Brassett: Well, some fund managers are better than others, although one we deal with cannot yet send out contract notes by email.

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Information

Chairman: Added to this, if DC is going to be the pension scheme of choice, the appetite for information will increase and whatever we decide to do, fund managers will probably want to increase investment choice. What will this mean for the members. How will they access that information?

Saunders: That is interesting as we have done a lot of work with the IFA community using The Exchange‘s Ex Web portal where we have been working with providers in order to open up their architecture to provide information such as fund valuations. It has been an interesting experience and we are finally getting somewhere; but getting a group of providers to agree to give away something which they regard as their edge over the competition has been tricky.

We are focusing in the first instance on the IFA community and if we can get it right with them then maybe we can open it up to trustees, administrators and everybody else.

Chairman: There is certainly a different attitude in general with more and more of us accessing information over the web. What influence can the web have in the future?

Brassett: One of our clients has a DC scheme and we have given their members access to their information over the web. It was a good move as they actually thought carefully about what their objectives were in doing this – a lot of their people work offsite and so this was a very sensible way to give them access to pension information.

The client also monitored the number of hits on the site and it was quite significant. What we, as administrators, perhaps didn’t anticipate was the number of calls we were going to get off the back of that information – fortunately we had also set up a helpline to support people who wanted to raise queries. So, at least it gets people interested.

But I do think the objectives have got to be right – there is no point doing it because the employer down the road has done it; you need to think about what you want to achieve through offering internet access.

Hallworth: I think the use of combined pension forecasts and modelling tools will grow significantly. As we move to DC, people are going to want information about fund performances; what their investment choices are and how much pension they will receive from their actual or potential investments. P3 provides expert admin systems, not investment ones, so we have agreed to work with another supplier who has expertise in this field. We can now offer our corporate clients these facilities and I think you will see partnerships like these as commonplace soon.

My one problem with forecasts, though, is that in order to get the details out, you have to put accurate data in. I think there is a great danger that wrong or incomplete information will be put in, giving inaccurate results. Will someone be held accountable for the fact that investments haven’t performed in the way that the website told them they would? It could be another mis-selling situation in the making.

Saunders: It is all about completeness as well – all you need is one piece of missing data and it puts everything out of sync.

Ross: We have quite a few clients who have done combined forecasts both in the public and private sector. In terms of what they aim to deliver, our experience is that they work perfectly well and the DWP is pretty efficient at turning them around.

Brassett: Being a TPA we can’t actually request the data yet until November when hopefully we get the legislation although we can work with clients and they can do the data request. We are actually almost there for issuing these Hewitt arrangements and it has been a fairly painless process.

There are limits, though, on what you can do with the information and there is a lot of mandatory wording that has to go on statements. If you are doing it as a TPA another problem is that you tend to only have the information for the scheme members but often the people who really need to know about their state benefit levels are those people who aren’t in the scheme; they are generally the ones who aren’t making enough provision.