Admin Panel (January 2007) - Think positive

CHAIRMAN
Susan Phillips
Director
Go Pensions

1. Trustees are taking a much closer interest in the detail of service supplied to them by all third parties, not least to comply with The Pensions Regulator’s guidance. How do you see this affecting the structure of the administration agreement, and are service level agreement (SLA) penalty clauses a positive or negative driver to better service standards?

2. Delivery of a pension admin service has become much more process-driven in recent years and members are far more interested in pension issues generally. How do you see your business changing further to deliver better and timelier information to members?

3. Demands on admin teams from changing legislation has been high over recent years and it has been important to be able to update calculation programmes and admin processes while maintaining the delivery to members. How has the business model for pensions admin had to change in order to maintain this balance and have any
lessons been learned from the A-Day implementation experience?

4. With an increasing move towards contract-based DC products, what do you see as the future for administering the remaining DB benefits?


Phillip Bretnall
Head of pension delivery service
Higham Dunnett Shaw

1. TPR’s guidance gives trustees a framework in which they must now operate; this is supplemented by closer scrutiny from auditors in the form of AAF/01/06 (to be implemented in 2007) which looks at the internal control environments of service providers. A tool for measuring compliance with these more prescriptive requirements will be the adoption of more explicit SLAs.
Will this be a positive or negative driver? The problem with a slavish application of SLAs, and the subsequent measurement and monitoring of them, is that they may not actually help trustees to improve or manage the service. This is because sometimes SLAs drive the wrong behaviours for administrators. My view is that SLAs need to be more balanced – including qualitative as well as quantitative measures – and also provide a method of rewarding exceptional performance as well as penalising poor performance.

2. Our service offerings are expanding to provide member and trustee access to information in a variety of ways, including helplines and web-driven solutions. An important aspect of this for schemes is the provision of excellent customer service skills coupled with technical pensions knowledge. This approach allows the maximum number of matters to be resolved at the first point of enquiry.
These are supplemented by dramatic improvements to the content and availability of benefit statements and other member documentation, which can be fulfilled in a means best suited to the members’ (and trustees’) needs.

3. It is clear the industry has learned (for some, painfully during A-Day prepara-tions) that robust project management skills are essential for any implementation or change. It is also evident that the use of robust and comprehensive testing strategies can ensure consistency and maintain performance after any change programme.
All too often facilities reduce following a change programme due to lack of proper testing and sign-off. Administrator sign-off is essential as it is they who understand the changes being made and the impact of them on their own work and on the service to members.
It is also worth considering just how schemes are set up on administration systems in the first place. Schemes set up in bespoke environments take much more effort to update. During A-Day changes, some administrators’ systems had to be updated on a scheme by scheme basis which ended up incurring significant costs for the clients. Be aware that bespoke is not always the best if you are outsourced since you can lose some of the advantages of sharing upgrade costs.

4. The demise of the requirement to administer DB schemes will be a long time coming despite the rapidly decreasing number of schemes that will still actually allow members to accrue further benefits. The way in which the administration is carried out will change as schemes adopt regular automated data transfer and routine data validation as the key means to maintaining clean data and keeping costs down.
As well as the above, we will see many schemes adopting the buy-out route (without abandonment) and hence a general need to bring forward specialised wind-up-style work to really button down liabilities. This would be via cleansing member data and preparing the scheme for transition to the “low touch” world of closed scheme administration or insurance company service. The main benefit will be reduced ongoing cost whether the scheme stays “occupational” or is bought out with a series of deferred and immediate annuities.


Brian Critchell
Senior account manager
Paymaster

1. TPR’s guidance is a good thing, but I think TPR is levelling its sights at relationships where agreements are not present, or are ill-defined.
Whether penalty clauses help depends on which side one sits. Positive relationships are perhaps better served without them. Open communication at all levels should enable problems to be addressed and mutually resolved, rather than the apportionment of blame.
Why focus entirely on negatives? What about bonuses for service exceeding expectations? This could go along with adopting more qualitative SLA measures.
Agreements should provide for visible reassurance that robust operational controls are in place. The best administrators will keep their risks under review and supply regular statements and reports, in a format consistent with the trustees’ overall risk strategy.

2. A balance must be struck between timely communication with members and the management of expectation. Simply producing benefit statements on time and issuing these to members while the data is still relevant only goes so far.
The growing use of company HR and scheme websites accessible from home or work means more scheme members can see how their benefits are accruing and/or how their DC fund is performing. The difficulty is ensuring that members understand their benefits and the long-term nature of the investment.
The experience of schemes with online access and fund switching options is that some members will tinker frequently with their fund choices. This may prove profitable for members, but could prove the opposite, whilst also creating additional administration.
The trustees or plan sponsor must be mindful of the level of pension knowledge within their membership. An audience must be able to understand a communication in order for it to be effective. Members must also appreciate that sometimes an instant accurate response will not always be possible, online or not.

3. The formation of well-focused project teams with strong leadership has proved most effective in tracking and implementing the continuing changes.
The invaluable contribution of flexible processes and software cannot be over-emphasised. One of the primary concerns of the administration provider should be software that can be updated quickly and accurately.
The streamlining of auditing processes is also crucial to monitor and track the changes that have been made efficiently.

4. I think the future is interesting. The press report better investment returns and potential surpluses. Some schemes may be able to fund a buy-out sooner, but others may delay as their funding improves. The statutory and public services sector seems set to maintain DB structures. Winding up is a long process many trustees will be reluctant to enter into, despite efforts to speed things up.
This means demand for DB expertise will continue. Some providers will concentrate on DC business, but many open DC schemes have a closed DB section alongside. DB schemes may have a resurgence in time; more likely, DB expertise will converge at a more process-orientated level, with reduced demand for separate services other than member communication and support.


Alistaor Hoare
Director of administration
MNPA

1. The key is seeking member feedback on the service. This should provide information on whether the service is meeting member expectations such as speed of response and clarity of communication.
A service that is process-driven improves quality by minimising human intervention and allows the administrator to focus on delivering the highest level of customer care. Use of technology can lead to process improvements and facilitate straight-through processing including the capability for the client to enter data via the web and validate it prior to uploading it onto the administrator’s system.

2. Trustees need confidence in their administration service and trust in their provider. This can only be achieved through complete visibility of service, which relies on a broad range of measures that evidence quality.
At MNPA we operate a range of quantitative and qualitative measures which are all focused on member servicing and trustee protection. Performance penalties are now a feature of some service contracts, however, it is important that the objectives in having them are thought through. They should be designed to drive improvement in performance rather than simply to “punish” the administrator.
To achieve this objective there needs to be an inducement for the administrator to continuously improve performance which may involve the ability to recoup any fee reduction if service improves and that improvement is sustained. Penalties and enhancements should be focused on driving the right behaviours.

3. A-Day required administrators to be more proactive in terms of their approach to service delivery. This has been good for the industry and it is important administrators continue to increase the profile of the service.
The service has also changed to recognise the control in terms of how much can be contributed towards and saved for retirement has largely moved from the administrator to the member.
A-Day was a major challenge for admini-strators and highlighted the importance of really good customer care in terms of communicating with members and managing expectations at a time when cases were taking longer to process due to reduced levels of automation while changes were being implemented. Simplification highlighted the need for administrators to be flexible and to be able to implement change quickly.

4. DB schemes are going to be around for many years to come and trustees are going to be focused on managing liabilities and service to their members and will be aware that they cannot sacrifice good governance and high quality of servicing for reduced cost. In addition, TPR’s consultation paper on managing risks for DC members (which applies to both trust and contract based schemes) will inevitably impact on DC administration providers.
This consultation covers several aspects of administration including SLAs, controls, communication and disclosure including the right for TPR to “name and shame”. If the regulation goes ahead it will increase responsibilities in relation to contract-based schemes and it will be interesting to see if it impacts on the speed at which scheme sponsors move from trust to contract-based schemes.


Malcolm Reynolds
Commercial director
Jardine Lloyd Thompson Benefit Solutions

1. It is often seen as good practice to assess and continually review third-party suppliers to trustees. Where this review takes place, it is common to reassess the agree-ments in place at that time.
For administration, these will have been reviewed recently, not least to ensure that the agreements reflect the revised services required following the simplification changes as defined in the Pensions Act and Finance Act 2004.
SLA penalty clauses are rarely written into agreements as they could potentially engender the wrong spirit of partnership. After all, no party would wish to see any penalty clause implemented – for the trustees this is a failure to select the right administrator (or manage it), and for the administrator it is a failure to fulfil a contractual promise that hurts the P&L (profit and loss statement).
However, persistent breaches of SLAs deserve all of the financial and reputational damage these penalty clauses bring, so, as a professional pensions administrator, we do not discourage these clauses nor fear them.

2. The delivery of a pensions administration service has changed from that of membership maintenance to one where there is much more customer care and attention.
Not only are members becoming increasingly more aware of pensions, they also have a real thirst for knowledge of what is a very complicated subject. Members (and trustees) can therefore only be satisfied if time and attention is given to them to help them understand how their benefit plans work.
Greater administrative automation through workflow and document imaging, and end-to-end processing allows administrators to focus on achieving higher levels of member satisfaction by being able to spend more time communicating (particularly the benefits of membership) and helping them through their issues without delay. Our business is now focused on just that and is predominantly measured on the levels of client and member satisfaction achieved.

3. Undoubtedly the major issue of any legislative change is one where there is not enough time to clarify what the legislation requires, and then for clients to make any discretionary decisions that are necessary, relating to how the legislation impacts their own pension schemes and the changes they need to make.
The most important aspect is to help, assist and manage clients’ expectations of what can be done within appropriate time scales to maintain service levels. At JLT we have a large, dedicated process-change and business-improvement team that is continually supporting the administration teams through such change and helping maintain service levels as appropriate. This is followed through by our colleagues at Profund Solutions.

4. As we have seen over the past four or five years, the trend towards contract-based DC products gets stronger every day. However, there is obviously a legacy DB pensions administration business that will require managing for some significant time to come and will probably fall into one of four camps: schemes that will continue to be active and offer future accrual; schemes closed to future accrual that will eventually wind up when the membership decreases beyond a certain level; schemes that will actively wind up with all members being transferred out at some point; schemes where liabilities have been bought out under a S32 or similar type of arrangement.
Luckily, we are geared in all four areas and plan to be administering these types of arrangements for some time to come.


Clive Wickenden
Client services director
Capita Hartshead

1. The Capita Hartshead Pension Scheme Administration Survey published last year shows that the proportion of third-party-administered schemes that have a formal contract in place has grown from 62pc in 1995 to 95pc in 2006.
This confirms that trustees are taking administration much more seriously. In addition, the percentage with penalty clauses in place has increased from just 7pc in 1995 to 45pc in 2006. However, of this 45pc, only 6pc had invoked their penalty clauses in the previous 12 months.
These statistics reveal a significantly increased focus on administration in recent years, which has further increased since TPR began issuing its guidance and codes of practice.
With regard to SLA penalty clauses, I think these are not necessarily a bad thing as long as they are focused on the right areas. Historically, administrators have been judged on the time taken to complete tasks. There is now a shift towards qualitative rather than quantitative measures, which can only be a good thing as far as member service is concerned.

2. Technological advances will play a huge part in how administrators interact with members in a number of ways.
Firstly, by helping administrators operate in a more efficient manner, it will enable them to spend more time managing member expectations for those members who do not want to utilise the self-service functionality that is becoming more widespread.
Secondly, there is the self-service functionality itself. Technology must be used to enhance the communication and education process, thus improving the pensions knowledge base of the membership.
Thirdly, there are specific areas where technology will enhance the service currently provided – straight-through processing, for example – the ability to transact investment instructions untouched by human hands.

3. Obviously, with changes on the scale brought about by A-Day, just about every process had to be reviewed, any necessary changes made and then the new process tested and signed off. A huge undertaking. In addition, all staff had to receive training on the new legislation. Some clients decided to stick with certain elements of the old legislation whilst others have fully embraced the “optional” elements now available.
All of this made simplification anything but simple and if there is one lesson to be learned from the whole exercise it is that the detail must be made available earlier in the process.

4. Despite the current trend, there are still an awful lot of legacy DB schemes out there which will require administering for a number of years yet.
Over time there is likely to be a large reduction in the number of active members of these, leaving some with only deferreds and pensioners. This has the potential to focus the minds of those paying for the administration as the schemes will no longer be a staff benefit to current employees.
A prime objective will, therefore, be an efficient administration service that provides value for money. A further option for schemes is liability buy-out using one of the increasing number of companies offering this service.
Either way, DB schemes are with us for a long time to come.