Outsourcing pensions administration

Should I stay or should I go now?

01 Jun 2021

Sitting on the horns of a dilemma is never a comfortable arrangement. Deciding whether to outsource pensions administration for the first time is such a dilemma. It's a decision that has a wide ranging impact on both in-house staff and pension scheme members; it is a decision that can weigh heavily, pushing those making it further onto those said horns.

Whilst the temptation to maintain the status quo can always be strong, it is worth considering to what extent the coronavirus pandemic has influenced decision making here.

In normal times, the areas that would be investigated as part of the decision making on “should we outsource our pensions administration for the first time” might include the following:

  • Member experience - level of control over care and communications
  • Corporate values & culture - how to protect them
  • Member service and expectations - what fits the membership (now & future) – how digital?
  • Key person risk - ability to recruit, train and retain staff
  • Knowledge - specific scheme knowledge, keeping up to date with legislative changes
  • Ability to deal with projects (now and upcoming)
  • Future-proofing - having a clear view and plan for what is coming up
  • Costs - staff, systems, accommodation, etc.
  • Systems and tech - platform maintenance and ongoing investment in tech

All these areas are just as relevant as they have ever been, but it is obvious that individuals and schemes will be coming at them now from a different angle in a post-COVID world. That angle will likely be determined by the answer to one big question for those with in-house administration.

"how did COVID affect the service we provided to our members and our delivery staff?’’

At one extreme, some may have been able to move seamlessly to remote working; at the other, administration staff may have been put under increasing pressure as key processes (paying pensions, settling benefits, handling member calls, etc.) turned into a daily struggle. 

Whilst those involved are no doubt learning lessons and setting out contingency plans, there is no doubt that their decision making on future options will be influenced by the last year. The views of the sponsoring employer may also have changed – has the past year just been a step too far for them as their risks have been brought ever more into focus.

Dilemmas always have two sides though – and the outsourcing dilemma is no different. There have always been fears about loss of control; about members considering it ‘selling out’. It will be interesting to see how these fears have evolved as a result of COVID-19.

The big question above can equally be applied to third-party administrators as well – due diligence on how they have managed during the pandemic will enable a judgement on (i) how their virus experience compares and (ii) their service provision. Exploring the former may be enhanced by speaking to others who have gone down this outsourcing path before. The latter remains important as third-party administrators vary and finding the right one to partner with will be crucial for Trustees.

Ultimately, it remains a dilemma – a challenging decision still, but one that is probably now being looked at in a different light. For decision makers, a lot of groundwork and understanding (see below) will be key. Combining these with a strong decision-making process, with enough challenge and due diligence, should hopefully leave decision makers comfortable enough to sleep soundly at night…no matter which horn of this particular dilemma they land upon!

6 key “understandings” for those facing this dilemma:

  1. Your pension administration needs – your specific requirements (now & future)
  2. Your risks and tolerances – what is and isn't acceptable
  3. Your current inhouse capabilities and what would be needed to future-proof the service
  4. The marketplace - what do 3rd party administrators offer (service offering(s), market reputation, values, costs, etc.)
  5. How best to run your tender process e.g. use of third-party evaluator
  6. The length of time and amount of preparatory work required

Are you considering outsourcing your pensions administration? If so, get in touch if you’d like to discuss your options in more detail.

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