| Standing
up to be counted
Pensions Age
admin roundtable
Since the
Pensions Age Administration Panel last met in December, the pensions
industry has experienced significant change, although how much of
this will directly impact upon the administration of schemes in
today’s environment remains to be seen. This month our panel
asks what administrators should be doing to help their members implement
this change; whether or not it is their responsibility to do so;
and why it’s time for negative comments about pensions administration
service levels to remain a thing of the past.
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The
cast:
Chairman: Robert
Birmingham is president of the Society of Pension
Consultants, the managing director of benefits consulting company
Entegria and a board director of parent organisation Hogg Robinson.
A graduate from Glasgow University, Birmingham started his career
in pensions and insurance in 1971. He qualified as a fellow of the
Faculty of Actuaries in 1978, joining Hogg Robinson in January 1985.
Robert is Hogg Robinson's most senior practising actuary, and is
also the appointed actuary to a number of the company’s final
salary pension schemes.
 Robert
Branagh is director of client development at
Paymaster, and has over 15 years experience in the pensions industry
across a variety of disciplines. He qualified as an associate of
the Pensions Management
Institute in 1994 and since then has been a correspondence course
tutor and an examiner for the Institute. He was elected a Fellow
in 2000 and has been membership secretary and treasurer to the PMI
Southern Group and serves on the PMI sub-committee on the qualification
in pensions administration.
Geraldine
Brassett is a pensions delivery specialist
at Hewitt. Between 1993 and 2001 she was a member of the management
team for the firm's Pension Delivery unit in Epsom, where she had
responsibility for people and growth issues. She became an associate
in 1998, and at the start of 2002, she moved to a new role as a
pensions delivery specialist. She is currently responsible for the
programme of work to implement the proposed legislative changes
across all Hewitt’s delivery clients. Geraldine is also a
qualified member of the PMI.
John
Broker is business development director at
Jardine Lloyd Thompson. His role is to provide advice to clients
covering a wide range of pensions issues, particularly in relation
to pension scheme management, outsourcing and third party pension
administration. He has over 18 years experience having trained with
a major actuarial partnership before moving to another major consulting
practice. He qualified as an associate of the PMI in 1994 and joined
Jardine Lloyd Thompson in 1997.
Gary
Evans is regional manager at Watson Wyatt.
He joined the company in 2001 as an operations manager and is today
a member of the Benefits Administration Solutions Senior Management
team. He has over 20 years
experience in occupational pensions, covering in-house administration,
third party administration, systems consultancy and administration
consultancy. He qualified as an associate of the Pensions Management
Institute in 1990 and is a graduate of Oxford University having
studied Philosophy and Politics.
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The debate:
Chairman:
"We
are all beginning to see how the flood of new draft regulation will
affect us and a lot of that will impact on scheme administration.
How are you all feeling about this change?
Broker: Simplification has direct implications
for all of us around this table, and I am sure it is occupying our
minds quite significantly. Saying that, I do think it is a positive
time for the industry and for pension administrators – it
is a time of change and I think a lot of that change is very welcome
and will ensure a higher focus on providing better information and
higher service levels.
Evans: I agree. There are some very positive
changes coming through from both the Finance Act and the Pensions
Act, and I think the challenge for people in the industry is to
try to avoid being too cynical. All too often we hear the word ‘complification’,
but if we keep our eyes on the medium-term we will see that things
are going to become simpler and easier for both pension scheme managers
and members under the new rules.
Branagh: In the medium-term I agree things
will improve and will become more transparent albeit two, three
or four years down the line. At the moment, though, it is also a
very interesting time for administrators because having had some
forceful observations from the Chairman of OPAS – whose report
last year identified administration as one of the key areas letting
members down – we now have the new Pensions Regulator whose
role, in addition to looking out for the PPF, will be to help the
management and administration of schemes going forward.
So, in terms of our profile as pensions administrators, I think
we have got an excellent opportunity today to actually come up to
scratch and say ‘we are doing a professional job, we are the
good guys here’.
Another positive move is that more and more of our clients want
us to get involved in scheme design conversations from an early
stage which hasn’t historically been the case. That is essential,
as scheme design changes going forward as a result of the changes
we are talking about are one of the major fall-outs of administration
processes.
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OPAS
report
Chairman: You mention the OPAS report
which stated that administration was letting members down. Do you
think that was in any way a fair statement?
Branagh: I think it was unfair as there
is a mis-match of expectations. We are not contracted by members
themselves to deliver a service – our clients are the trustee
bodies/the corporates/the sponsors, and what we have between us
is an agreement that says we will provide X amount of quotes or
Y amount of services, and we aim to deliver against that.
In addition, we have to deliver against a background of poor data
and in an industry where the margins are very tight. In those circumstances
I think all of us, especially in the TPA world, do look out for
members and trustees as much as we can. So I do think it is unfair
that we get criticised for letting members down as while occasionally
it does happen, it is against a background of the thousands or even
millions of members we look after who, by and large, get a very
good service in relation to what their trustee/corporate/sponsor
has contracted us to do.
Brassett: Saying that, where the industry
probably has room for improvement is in terms of pro-activity. TPAs
have traditionally been quite reactive in approach but that is no
longer appropriate. It is important to ask questions, understand
the business issues for your client and only then can a partnership
approach really be achieved.
Also, quality tends to be subjective. The only really recognised
measures in use are response times but they are not a measure of
quality, only how quickly you have done the work. More valuable
measures need to be developed, which truly indicate levels of client
and customer satisfaction.
Broker: I think this raises the point
of how much the role of the pension
administrator has changed. If you go back a few years, it was very
much a paper-based, systems processing role where managing risk
was not at the forefront of trustees’ minds. We are all now
far more focussed on risk management which of course is right and
proper. Pension administration services have come a long way.
You also ask the question of whether we have let members down –
I don’t believe so. But I do think that, going forward, the
role of the administrator will evolve much further into being recognised
as the front-line communicator with the pension scheme members.
In addition, the materials we are using have become more sophisticated,
with companies more willing to sponsor and pay for member communication
alongside the administration of a scheme. New legislation will no
doubt increase that focus and result in raised standards all round.
Evans: I agree that by and large pension
scheme members have been getting a good service from their administrators,
and I also agree that the climate over the past two or three years
has evolved in that pension scheme members’ expectations have
changed quite dramatically – they are so much more aware of
pensions as a major element of their remuneration and of their wealth.
However, in the huge drive to try and commoditise delivery, price
has become one of the key factors that we see in buying decisions,
so from a trustee and corporate perspective some are looking for
services to be more packaged i.e. they want them cheaper and they
want less of the “frills”, such as communication, around
the edges, but of course members want the exact opposite.
So there is almost schizophrenia at the heart of conflicting requirements.
Against that, the world has moved on so much in technology terms
that people have come to expect that in any area at all they can
get on the internet and get the information they want almost immediately.
Branagh: It is also important to recognise
that you get what you pay for and if the market is being driven
by price rather than customer service, then eventually you are going
to get to a base point where you can only deliver a certain amount
of transactions, etc, and that is the way the market has been driven.
The changes that are coming in now do allow people to think, perhaps
for the first time, that administration is an important part of
the overall process.
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Member
expectations
Chairman: What you are all talking about
creates a lot of conflict in my mind. Robert talks about the criticism
being unfair and a mis-match of expectations. How do we in the business
reconcile all of this? How can we create a framework that meets
members expectations when (a), we don’t know what they are
and (b), you haven’t got capacity to do it?
Evans: There is a point on the agenda
which raises the issue of quality of service and for me this is
tied in with how people get information in the first place. In order
to improve that what the industry needs at the moment is major investment
in technology so that members can help themselves more. And that
comes down to the sponsoring employers/trustees.
Chairman: But are they going to embrace
that change, or is price still going to drive decisions?
Broker: I think the issue of price driving
decisions is always a factor but I think the frustrating thing is
that administration is still seen as a commodity and that just isn’t
the case any more.
All of us around this table have invested a lot of time and money
into improving processes; similarly risks are far better managed
these days; and it is in areas where value can be added that I would
like to see more focus.
For example, we should present ourselves more as communicators and
make people more aware of the options we have available and encourage
them to focus more on that in the administration service delivery.
Evans: But it depends so much on what
individual trustees and sponsoring employers want – I think
it is a mistake to think that there is a single service that will
work for everyone.
Chairman: What are we doing about establishing
member expectations and managing them? Is there more contact all
round with the members where you can manage expectations?
Evans: I think there is an opportunity
every time you touch on a member, and whether it be a with a phone
call, an email, or a letter you have an opportunity to set an expectation
about what happens next and part of that is purely around explaining
the process.
Broker: I agree with that and I think
an interesting example might be where a retiring member is going
to receive a pension very shortly. In the past, very little information
was provided beyond the basics covering the pension and cash options;
today, in many cases, far more information is provided in advance
so they know what is going to happen, when they can expect to get
things, what the technical process is in terms of setting them up
on the payroll and so on. We now provide a ‘welcome to payroll’
information pack to all retiring members as a standard service and
this is very popular with clients and members.
Evans: And we will have no choice but
to improve communication with members because, in this new pension
world, no-one will understand what you are asking for if you don’t.
For example, you are going to have to write to a retiring member
and say you are getting your pension benefit as usual, and here
is the value of it, but all of a sudden this figure will represent
a percentage of a lifetime allowance. They need to be able to tell
you in return to a fixed deadline how much of their lifetime allowance
remains unused, and most members, unless there is a serious change
in communication, are just not going to understand.
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Communication
Chairman: Communication is particularly
interesting when talking about DC pensions. No-one has said the
word ‘advice’ although we have got very close to it.
What does that mean to members in the context of DC?
Evans: I think the first challenge for
DC managers is engagement – how do you actually engage members
enough to encourage them to make positive investment decisions as
opposed to just opting for the default fund?
Another positive step will be when employers are given the ability
to promote their schemes because at the moment they all feel very
constrained to say very much at all except to provide basic information.
Branagh: Work-based support is already
being pitched by the government as something that will be beneficial
not just in relation to pensions but also for wider employee benefits.
But the amount of money it is proposing to give companies to help
with that is minimal and will not go far enough to help educate
or inform members.
Broker: In addition to support, I think
there needs to be better guidance for trustee and companies on just
how far they can or should go in terms of preparing members and
giving them information – perhaps this will come from the
new focus the Regulator will have on pension administration.
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New
legislation
Chairman: Are clients starting to make
decisions in relation to new legislation? Are they giving themselves
enough time to implement the changes or are they going to leave
it all to the last minute?
Brassett: Preparations for simplification
are now well under way for a lot of schemes, however, it does not
appear that the industry has benefited significantly from the extra
year it was given.
There are two key issues; first, the proposals operate on two layers
– the compliance layer which is reasonably well defined, and
the enabling layer which allows, but does not require, the employer
to make changes to the scheme design.
Issues contained within this enabling layer include such things
as flexible retirement and so on. In practice, many organisations
are only just starting to consider these changes and many have not
made the decisions in time for their administrators to implement
what are very scheme specific changes by A-day.
Second, the final regulations, which we were originally expecting
in the first quarter 2005 are delayed as is the Inland Revenue guidance.
It is highly likely that there will be some changes from the draft
regulation and this is likely to have an impact on current plans
for processes, data holding, member communications and so on.
Broker: I am sure all of us have communicated
the issues to clients and most are taking them very seriously. Some
of the issues are very complex; and they need a lot of time to digest
information and make decisions.
The removal of the earnings cap, the issue of income drawdown and
flexible retirement are going to be significant to us as administrators;
there is a lack of consensus about how it is going to work in practice
although some voices in the industry are talking about forming a
common approach which might be useful (even if unlikely).
Evans: I was at a seminar recently where
there was a certain degree of nervousness about flexible retirement
as it could actually mean anything. There was a suggestion made
there that the industry should unite and say we are not going to
work with this, which I don’t think is realistic. But I do
think it is equally un-realistic to think you could do absolutely
anything in this area in the timescales allowed.
Branagh: You have got to have one stance
and then work around those clients that get in early. We are finding
about 40 per cent of our client base haven’t really embraced
the changes yet; and if they come back to it in October it will
probably be too late to implement everything they want.
Broker: Also there is still a lot of detail
missing. Some of the issues are also very complicated, so I suggest
a generic approach to most of the issues is what is going to happen
for most of the clients.
I think another issue is the degree of pro-activity they decide
to take – for example to what degree will they provide information
to members about the lifetime allowance and the impact it has on
benefit entitlements. Some clients will of course prefer a very
proactive approach and others will take the view that it is the
responsibility of the member to request such information.
Evans: An even broader issue coming out
of pension reform to my mind is that it really re-enforces the ownership
theme that the government has been pushing.
Members will no longer sit there and have something handed to them
– they are now going to have to be responsible for actively
managing their tax and savings positions throughout their working
life because if they get it wrong, they may see a huge tax bill
at the end of it."
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