John Reeve explains the growing requirement for an outsourced pensions manager

The role of the pension manager has changed. It has evolved from a badge of honour given as an easy role for those who are looking to wind down to retirement ("how difficult can it be?") to one of strategic importance to many companies. In addition, pensions has moved from something that everyone assumed was run correctly and appropriately to something regarded by members and the Regulator with suspicion.

Increasingly complex
So the role of the pensions manager is now more complex, more technically demanding and more important than ever. However, this comes at a time when many companies have closed their final salary scheme and replaced it with a contract based arrangement where the provider takes more responsibility. This is also a time when many companies have decided to outsource their pension administration and when the pressures to reduce costs are at their greatest.

So what does this mean to those companies facing the need for strategic pensions input but with a reducing need for the day-to-day involvement of the in-house pensions manager? Those individuals with the knowledge and skills to provide the input to the board regarding funding, de-risking and pensions strategy are sought after. However, they are less attracted by the fact that there is less day-to-day involvement (since much of the service is outsourced) and they are expensive for the project-type nature of the role. Only those companies with a constant flow of projects and a regular need for strategic input can afford the modern pension manager.

So what is the solution?
As a result of these competing pressures, we are seeing an increasing tendency to outsource the pensions manager role or the role of assistant pensions manager. Commonly we see this initially as cover for sickness, maternity and other long-term absences. With the reduction in staffing and the importance of the role there is less possibility of covering this within the resources available. Outside help is therefore invaluable.

We also see those faced with the resignation or retirement of a pensions manager looking at the role differently. Their need is for strategic input when they need it. They have a need for highly skilled, technical and experienced people but probably not five days a week. They also have a need for extra resources at times of increased activity: the actuarial valuation or where there is corporate activity. All of this leads to an outsourced solution.

By getting access to a named, individual, pensions manager from a consulting organisation, the company has access to someone with a wide range of experience, someone who is also working with other companies and someone who has access to additional resources when needed. By setting up the appropriate contract, the employer can ensure that they only pay for the service they need but ultimately have access to the skills required.

Finally, the outsourced approach provides a solution to one of the largest issues for in-house pensions operations in the new environment - conflicts of interest. The traditional role of the in-house pension manager is now one with potentially huge conflicts. He or she is often paid by, and reports to, the employer but is also expected to support and advise the trustees. In the new world of better governance that position is unsustainable. To advise both parties on the negotiations of a triennial valuation or a de-risking proposal is not possible. By outsourcing the employer and the trustees can have access to their own, independent advice without ‘doubling up’ on the costs.

Whilst it is not for everyone, the outsourced solution provides a different way of thinking that an increasing number of scheme sponsors find meets their needs in the new environment.

John Reeve is head of consulting at Premier Pensions Management

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