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Keeping
them hooked Managing expectations, as well as delivering the goods, is a major part of successful outsourced pensions administration. But how much value-for-money can be expected from outsourcing, what are the tell-tale signs of good and bad service, and at what point does it make more sense to adopt commercially available software and go DIY? The need to deliver key services in the right timeframe and to meet scheme rules and legislation is fundamental. Therefore, web-based administration is a must. It is no longer a niche-marketing tool of technology-happy young outsourcers, but the reality of delivering low margin, high volume business. It is a common myth that outsourcing pensions administration is principally about saving money; the biggest advantage can be the transfer of risk. “While the trustees can never transfer the responsibility,” says Nick Wheeler, sales director for Paymaster, “they do transfer the risk to somebody else.” This gives even more reason to expect top quality service from a third party administrator. “Since an outsourced administrator accepts responsibility for systems updates, disclosure, compliance and legislative changes,” says Sean Hansbury, manager of pensions IT development at Gissings, “organisations need to consider the options carefully.” Whether the administration is outsourced, or kept in-house, a new look at what today’s technology can offer is vital. Payroll, pensions and personnel have traditionally worked from different databases and a staggering amount of “black box” work can be needed to pass data along a pseudo-integrated system – leading to inaccurate benefit statements, paperchases and embarrassing delays. Modern bespoke software is finally getting on top of these problems, but the hard work is still in the setting up. “Any good outsourcing arrangement ought to include, from the outset, a complete data audit and cleanse,” according to Hansbury. “In many instances, it is not until an organisation decides to outsource that many issues come to light. There is no point in moving administration online if the data is incorrect,” he continues. If the outsourcer tells you it is a simple job to put the service up live, then be suspicious, warns John Berry, general manager of implementations at third party administrators, Marlborough Stirling. “Expect a methodology of how they are going to implement the service and look for written definitions of how the operation will work,” he advises. It is vital that everyone’s expectations are clear from the outset. Both parties must agree on, and document, the paper forms that will be used and the procedures that will underlie the administration processes. “If I was going to buy from an outsourcer and I didn’t see that, frankly, I would walk away,” says Berry, who stresses that such agreements must be reached before anything goes live. Poor processing quickly reflects down the line and stop-gap measures are usually paper based and inefficient. However, in a post-stakeholder environment, pensions simply don’t have the financial margins to make this acceptable. “If poor quality data isn’t sorted out at the start, the service level is likely to remain poor, with the administrator constantly playing ‘catch-up’ – missing deadlines, or even making calculation errors,” says Andrew Inchley, pension markets practice leader for Hewitt. Good service, he says, is usually found from those committed to investment in people and processes as well as technology. Signs of bad service are often there from the beginning, according to Inchley. “The tell-tale sign is often the initial site visit, taking the lid off the provider’s marketing material to see how they actually operate,” he says. Track record is a good indicator of good and bad service, so ask for references from other clients and expect to get them. Look, too, for good written service standards with penalties. “Ask the outsourcer if they’ve ever had a penalty applied on them,” suggests Berry, “and look at their staff turnover.” You will want to know a lot about the staff dealing with your clients, so expect to find a good core of specialist pensions personnel who can advise on legislative and compliance issues. Workflow in peak periods is another area where outsourcers need to manage the expectations of scheme providers as well as scheme members. “An outsourcer needs to be able to handle peak workload periods. Insufficient staffing is often a reason one takes a decision to outsource in the first place,” points out Hansbury. When it comes to value for money, the toss-up is between what you pay and what you get, so it is not always wise to be tempted by loss leaders. “If you go to a small outsourcing operation which has overheads but not huge volume, and they are coming in with a low price, they’ve got to be on a thin margin and they’ve got to be vulnerable,” says Berry. While outsourcing can provide the best solution for smaller players, those with established IT departments may want to keep their hands on the reigns. Inflexible and outdated IT systems are the main causes of DIY failure, but specialist help is commercially available. Access to member information, with transactional facilities across the web, is something that all schemes need to be aiming for, so while it is largely the third party administrators that have embraced the new technologies, there is a small group of early adopters amongst the in-house schemes – and life offices, too – looking to systems like Profund’s oPen to bring them up to speed. The Post Office is a good example of where RebusHR has made it possible for the latest technology to underlie in-house administration. “An in-house solution would appeal to what I would call the more ambitious and forward thinking organisations – those with a bit of drive,” says Richard Kalina, pensions business development manager at RebusHR. “What we’ve developed is pensions administration software – workflow-enabled, imaging-enabled and intranet-enabled – so members can come on board for their own quotations.” Depending on the size of the organisation, there can be good reasons for using commercially available software to keep administration in-house. Risk is an argument usually put for outsourcing, but Kalina views it from the other angle, saying that when a function is this important, you might be putting your business at risk by giving it to somebody else. “You have, in fact, doubled the risk in a way,” he says, “because you still have overall responsibility for the pension fund but you also have to take on the risk for this third party supplier now.” But
as the face of pensions continues to change, pooling of effort remains
one of the big benefits of outsourcing and will be very evident
with the pension projection changes. “Basically, all the clients
are compelled by legislation to change their processes. With ten
clients we can do the development just once,” says Berry. So each
provider can expect to add to, and benefit from, a consensus view
on best practice. Expectations are high, too, among the young earners
who have finally taken over responsibility for their own portable
pensions. At the same time, companies are becoming all too aware
of the risks involved in administering DC plans. Compared to their
defined benefit ancestors they are proving complex and demanding,
with mistakes often costly and difficult to correct, so it’s hardly
surprising we have seen a constant shift towards outsourced technology
solutions.
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