| Running
like clockwork
Pensions Age
admin roundtable
The onset
of simplification has certainly played its part in highlighting
the importances of effective pensions administration. Systems need
to be updated, new rules and regulations adhered too, so it’s
not surprising more pension funds than ever are considering the
outsourcing option.
That’s not to say that there aren’t 1000s of pension
schemes boasting excellent in-house admin teams, and no-one could
say that the technology available from today’s providers isn’t
cutting edge.
But is the industry lagging behind in its adoption of this new technology
and, if so, why? Is it a cost issue, or are we just afraid to take
things forward? These are just some of the issues addressed by the
Pensions Age panel of experts in the first of a series of administration
roundtable debates.
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The
cast:
Chairman: Robert
Birmingham, recently elected as President of
the Society of Pension Consultants, is the managing director of
benefits consulting company Entegria and a member of the executive
management team of parent organisation Hogg Robinson plc. As Entegria’s
most senior actuary, Birmingham has extensive experience in providing
strategic advice to employers and pension scheme trustees in all
aspects of pension provision including M&As, and scheme restructuring
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
The debate:
Chairman’s
introduction: All of us involved in pensions face
challenging times ahead – simplification, the PPF, the new
Regulator, and all the associated provisions outlined in the new
Pensions Bill present huge challenges that have to be implemented
successfully. But, the biggest challenge we face is restoring public
confidence in pensions and all of us have a responsibility to try
and achieve that, with administrators being at the forefront.
Focussing on simplification, do the right people know what needs
to be done in order to comply with the new legislation, and is there
time to do it?
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Ross: Do we know what needs to be done?
Not entirely as some of the detail is still to come. Can it be achieved
by 2006? We are reasonably comfortable, from a systems provider
point of view, that we can get things done in time. The bigger challenge
will be implementing the changes across all clients – will
clients implement the changes without affecting the scheme design
or will they, given that they have an extra year, look at scheme
design and decide to change it?
Up until the date was moved from 2005 to 2006, people thought there
wouldn’t be enough time to make design changes so they planned
do the minimum necessary to comply with the law; but now as they
have an extra year, they are looking at doing more.
Brassett: But if people take the extra
time just to decide what they are doing, then the admin providers
will find they have the same amount of time to implement the changes
that they would have had previously. We at Hewitt certainly expect
sponsors to be thinking more widely about their scheme design now
the date has been changed.
Saunders: What we have found at Marlborough
Stirling, talking to our clients, is that there has been a sigh
of relief with A-day being pushed back and it has encouraged them
to change their approach.
Previously they were planning to do the bare minimum but, with an
extra year, they are more focussed on how best that change can be
achieved.
The concern we have is that, despite having confidence in our ability
to deliver, we are looking to achieve consistency in how things
are delivered across our clients.
We have been trying to get people onto a single platform so we can
share the costs and benefits across the people we support but not
all our clients share the same views, for example, with regards
to web access – it all depends on who the members are and
that is acting as a barrier to blanket implementation.
Hallworth: From a systems perspective,
I think there are two main issues: whether or not the system providers
can change their systems in time to accommodate the changes, and
I think the answer to that is yes.
But, having done that, the benefit calculation changes for all the
clients have to be implemented by the TPAs and providers. Whether
they can achieve this is a question for them but I somehow doubt
it as it is likely that these design changes will not be finalised
in time.
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Time
concerns
Chairman: Each of you has mentioned scheme
design – I think the insurance companies have a reasonable
track record of developing products whereas employer sponsored schemes
may not. Is that a concern?
Hallworth: Implementation for private
clients has traditionally been done by the system providers, so
I think there is going to be a great backlog of work there. It would
be good advice for the scheme sponsors to get in early in terms
of making these changes. As a reasonably new provider this is less
of a problem for P3.
Ross: I agree there is a backlog problem
for the administration and software providers to make sure that
their clients are ready in time. I think some clients may be under-prepared
and it is up to us to work with them to make them aware that turning
up in the first quarter of 2006 and saying we need to implement
the changes by April will not be a wise move.
Brassett: It is also important for the
administration and the design consultants to work very close together
from an early stage as while there is probably enough time, there
isn’t plenty of time, and it simply won’t be possible
to administer every solution of every type in less than two years.
Hallworth: A lot of private clients are
still on old legacy systems and I feel this new legislation will
almost certainly act as a catalyst for change – whether that
change is to a new system provider (obviously music to our ears)
or whether it is, indeed, a catalyst to outsource, we will have
to see.
We don’t want to see a mass migration to TPAs but I do think
a lot will want to make that move. Whether the TPAs can provide
a quality service to new clients as well as their existing clients
in time for 2006, though, is another very big question.
Brassett: I think you are right in saying
that the market is likely to see an increase in outsourcing. I suspect
a lot of organisations will not have planned for these sudden extra
costs and even if they don’t eventually outsource, a lot will
at least be reviewing their current provisions and asking themselves
whether they would be better protected from similar change in the
future if they were outsourced?
In response to whether TPAs will be able to take on these new clients,
it is likely that in this respect, 2006 was good news. Had the date
remained 2005, it would potentially have been a struggle for organisations
to find providers. I am not saying that means everyone who wants
to outsource for the first time will be able to find a provider,
or perhaps their one of choice, as all TPAs will be very busy.
Saunders: Saying this, though, those that
haven’t already started the outsourcing process are in danger
of missing the boat as implementing an outsourcing arrangement can
be a very time-consuming exercise. So, if anyone intends to make
that step in time they have to be talking about it now – they
can’t leave these things too late and they shouldn’t
let the additional year fool them.
Hallworth: Conversely, I don’t think
people on legacy systems should stay put. I am not saying that for
commercial reasons but from an admin point of view as I don’t
think the systems they have will be able to provide what they need
under the new legislation.
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DB vs DC on the web
Chairman: Do we need to differentiate
between DB and DC plans here?
Ross: I think you do have to distinguish
between the two in terms of what is going to happen to overall pension
provision. If you look at the problems associated with DB schemes
(legacy problems, accounts problems etc.) then the argument for
outsourcing becomes quite strong.
On the DC side, there is an argument for providers or TPAs to move
self service out to the employer (as opposed to the member) as the
employer is a reliable and trusted ally – if you are processing
monthly DC contributions and you deliver a web-based way of doing
that, and you deliver it to either the payroll or finance departments,
then as a TPA or provider you can have some confidence that they
will be doing it properly.
Hallworth: But TPAs are not going to like
that as that will mean taking their admin staff out of the equation.
Brassett: Well, let’s address the
web issue first. I think DC on the web works extremely well, but
it has to be set up right and you do have to have good data (and
that’s why DB on the web is very difficult to achieve as,
for historic reasons, some DB schemes have issues with their data).
So, DC on the web, where the member takes on the responsibility,
can work well if you have got the underlying functionality right,
and it can be extremely effective. Saying this, though, it always
comes down to the employers having properly thought through the
reasons why they are giving their members that facility. If they
are doing it because it is trendy or because it is what other people
are doing, then it is not going to be that effective.
Saunders: I think DC on the web can work
for certain groups of members. In terms of the discussions we have
had with our clients, some initially say they want to go onto the
web but, once they start to look at in more detail, there is a lack
of clarity about what they actually want to do on the web, and what
the providers are happy for them to do.
Also, it is no good if you provide what appears to be self service
front-end if you are still carrying administration costs behind
it. It has to be true self service and it has to be real-time, otherwise
you will be doubling up your costs.
We are also doing some work at the moment at the IFA end of the
market, putting self service opportunities into their offices, and
even that is proving challenging. I think it is somewhere everyone
wants to go, and there are some people doing it successfully, but
one size doesn’t currently fit all.
Ross: I think it is very hard to make
a cost case for pushing self service out to members if only a small
proportion are actually going to use the service. Here the case
has to be made on service not cost grounds.
Hallworth: I don’t think it is a
cost issue but a quality issue. At P3, we always offer private clients
free online access for members but they still don’t use it
– they like the idea of having it and they look on it as something
they can implement in the future, but they still don’t do
it. Why is that?
Brassett: Take-up depends on organisational
culture – organisations that use the web extensively within
their business processes tend to be the ones that adopt the web
more readily.
top
The
role of technology
Hallworth: That leads us onto the next
item on the agenda about how technology can help administration.
We talk about traditional administration services whereby the employer
fills in a form, sends in a payroll file and the administrator picks
it up (and it may or may not be accurate), plugs it in to their
system (which may or may not be accurate), and goes through a workflow
list ticking off the boxes as they go.
In terms of how technology can help with that process, if you look
at administration going back to the mid-70s, we were trying to provide
a service that would allow the effective administration of pensions
schemes.
What’s happened now, though, is that we have more than achieved
that and have gone even further – things like the web solutions,
online access and automation is technology that is way ahead of
the administrative services that are being provided today; so actually
now the tail is wagging the dog.
The reality is that current staff who process the day-to-day administration
are going to be cut out of the picture almost completely because
the tools we now have means there won’t be any need for them
in the future – instead they will simply audit the automated
admin and sort out any data or other errors.
The advantages of this are obvious – if you don’t have
an army of admin staff there will be significant cost savings. But,
more importantly, the quality of data and output will be so much
better and faster as you are only entering the data once.
And that is where admin should be going; the trouble is, there are
currently no TPAs providing that degree of automation – some
are slowly moving in the right direction (and I’ll drag them
kicking and screaming if I have my way) but they still don’t
buy into this thought process because if there is no longer a role
for the administrator, they might end up doing themselves out of
a job.
Saunders: I am not sure the issue of decreasing
admin numbers is actually such a big concern – we are doing
things all the time around automation and any form of single data
entry has got to be good admin practice. Also, I agree we as an
industry are not moving quick enough in this area. The main problem,
though, is that we work in an industry where there are still a lot
of legacy platforms.
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