Admin Panel (March 2007) - Feel the quality

Chairman
Susan Phillips
Director
Go Pensions
Phillips has been in the pensions industry since 1988. Before joining Go Pensions she was UK pensions manager for a major accounting firm. Prior to that, Phillips has worked for a global investment bank looking after both UK and offshore in-house pension arrangements. She is an associate member of the Pensions Management Institute.

1. Is the quality of third-party administration pivotal on the right people or technology?

2. Web-based member self-service is increasingly being requested by schemes. What usage rates do you experience and what functionality do you think is necessary to engage members?

3. What progress do you see in administrators moving to straight-through processing arrangements with the investment managers for effecting unit transactions?

4. Will all DC TPAs have to provide fund platforms to remain competitive?

5. How many TPAs will there be in five years’ time? Will the marketplace shrink to a few super-powers?


Mike McMillen
Business Development Manager
MNPA
McMillen has worked with MNPA for a number of years in a variety of roles. These include being a client manager for some of MNPA’s clients and also heading up MNPA’s substantial pensions administration department. McMillen is responsible for marketing MNPA’s services which encompass pensions administration, administration consultancy, property investment management and personal financial planning services.

1. Both can impact on the quality of service. However there is no point having the best technological solution if the underlying data is not good and that is often the responsibility of people both at the administration and client end. In this instance technology will not deliver quality.
Similarly, member percep-tion of the service will typically be influenced by the quality of the individuals they deal with when they contact their administrator. What is important is to measure member and client percep-tions of service quality through member surveys, service review meetings and so on.

2. It is important when considering web func-tionality to differentiate between DB and DC. The demand for member self-service for DC schemes continues to grow. However the actual usage by members varies between clients.
Measuring the usage through “hits” to the site, pages visited and time spent is vital to ensure trustees achieve value for money from the site. Members also need the facility to provide feedback on the site. The benefit to DB members of member self service is less obvious. However, the ability to check data and carry out online modelling tend to be attractive features.

3. While bringing benefits in terms of reducing the time taken to invest contributions, update units and prices and complete reconciliations, achieving straight-through processing requires significant investment in technology. Some organisations are putting the infrastructure in place to support this, although a number still involve manual intervention. While STP is the ideal, to achieve this requires co-operation from providers and investment managers and in the absence of industry standards in terms of areas such as data transfer, this may be difficult to achieve.

4. In our experience there is no evidence yet to suggest this. The current focus has been web services and the processes to support timely investment of DC contributions. DC tenders have therefore tended to concentrate on the robust-ness of the administration system – from validation of data to investment. The provision of web can support this process by allowing clients to input and validate data and then transmit this via the web. This cuts out much of the “to-ing and fro-ing” and means clients can deal with queries when they have the information at hand.

5. The market is definitely changing. There are some providers growing through acquisition and, it is inevitable, given the signifi-cant regulatory change administrators have to cope with, that some smaller providers will choose to be bought by or merge with a larger provider to benefit from economies of scale. However, it is unlikely that the market will be reduced to a few superpowers but choice for clients may certainly be more limited in the future.


Mike Reid
Director of Pensions
Higham Dunnet Shaw
Mike Reid is director of pensions at Higham Dunnett Shaw (HDS), a leading provider of consultancy and outsourced administration services for life assurance companies, pension schemes and pension trustees. HDS has been serving the needs of the pensions industry since 1986. It delivers a range of innovative, high-quality solutions that can substantially improve the efficiency and quality of the administration process for both on-going and discontinued schemes.

1. The simple answer to this question is both. In the provision of a quality administration service you simply cannot divorce the two key resources of people and technology. While being strong in one area may compensate for a weakness elsewhere, (which will probably drive a good service but at an unaffordable price), a strong process control environment that utilises workflow and resource management toolsets is imperative for optimising the quality of service.

2. With the huge rise in web usage within the general public and the increase in the provision of DC schemes, offering real-time web access for pension scheme members is be-coming more of a necessity than a luxury. The key ques-tion, however, remains how to maximise such facilities?
Usage rates of the web will depend on several factors including the sector that the company operates in and the scheme design. There is often a spike in interest when web facilities are first intro-duced which quickly falls away as there is no on-going encouragement for members to use the web.
The required functionality will vary but in all cases it is essential that the information displayed to the member is accurate and complete and that they can easily navigate the site.

3. Progress in this area is inevitably slow with only a few TPA providers and investment managers being able to claim any success. A number of administrators have taken steps towards creating an STP environment such as providing on-line submission and validation functionality to the employer. While a positive move, however, this only addresses half of the overall process.
The dealing aspect between administrator and investment manager remains a prolonged, risk-strewn manual process which proves costly for all parties involved. As a result, we have seen several industry initiatives to review current practices and to define common industry standards. Of these the Investment Managers Straight-through processing Development Group appears to be developing the best traction, with a handful of TPAs and investment managers currently piloting the use of a new messaging standard (ISO20022) for the placement and completion of trades. This is an excellent development which represents an important step in providing a genuine STP environment.

4. Experience of the development of DC markets in other parts of the world has been that over time administration is offered as a “free” service if a scheme takes the investment product. Interestingly, in Australia, the investment product then became multi-manager itself, offering “guest” funds from what are essentially competitor’s investment funds!

5. We have seen some consolidation of the TPA market in the UK during the last few years but there are still more than 60 providers, with new entrants coming into the market each year. The Australian experience was that several traditional “global” players removed themselves from the TPA business and passed on that part of their business to the IBMs of the world. Some argue this will also happen in the UK but we still believe there will be a market for small to medium-sized specialist/high-quality providers in addition to the “super-powers”.


Malcolm Reynolds
Commercial Director
JLT Benefit Solutions Ltd
Reynold's role is as national director of the benefits administration practice that provides advice to clients on operational admini-stration effectiveness. Reynolds is a member of the JLT Executive and has over 15 years’ experience in the pensions industry. He was previously a director at Pricewaterhouse-
Coopers, where he spent 11 years and was responsible for the pensions management consultancy services. Reynolds was also a director at Profund Systems.

1. One could argue the quality of third-party administration is pivotal on either people or tech-nology but in actual fact quality is dependant upon a number of factors – people and technology are among them but they are not exclusive.
Other factors include:
• The overall administration solution put in place for each client to meet their own administration needs
• How far processes are adapted to integrate administration staff, systems, clients, other third parties, members and trustees
• The practice of dealing with and communicating with members – the customer experience; whether that be through technology (web, e-mail), people (call centre, help lines), or paper-based (letters) solutions. Either way, communication should be concise and relevant
• The controls in place and the ability to monitor and report upon activity
• The ways of dealing with issues in a fast, effective and satisfactory manners

2. Web-based solutions have been talked about for many years and are an absolute requirement to satisfy pensions procurement consultants. However, the take-up of these solutions has been slow over the past few years but, at long last, we are now beginning to see a steady increase in activity in this area over the past 12 months.
For DC schemes, the advantages are obvious with members able to see and carry out on line transactions without intervention. For DB schemes, the advantages are less obvious. The increase in activity is largely driven by the changes that have been/are being made to pension schemes – most commonly in response to funding deficits. The web-based solution allows members to get the most up-to-date information relating to their pension scheme. In addition, members can access historic benefit statements, run online calculations of benefits and projections.

3. In an ideal world, transactions for invest-ment/disinvestment would be automatic and feed straight through to the investment manager system with prices and confirmations being fed back into administration systems to automatically update systems. The issues in getting to this point right now are onerous; investment managers have a multitude of systems so building interfaces becomes complex and costly; the audit trail of flows becomes complex and in a world of internal controls, this presents an unnecessary risk for trustees; and investment managers can often be changed.

4. TPAs generally deal with occupational DC schemes as very few contract-based DC portfolios are outsourced. As occu-pational DC schemes are shrinking in favour of contract-based arrangements, those TPAs specialising in DC administration will need to come up with innovative ideas to retain what is left in the market. Fund platforms are one such innovation.

5. The introduction of the National Pension Saving Scheme (NPSS) has the potential to create a small number of very large TPAs, should the government wish to outsource the pensions administration of this arrangement. At this point, and maybe before, there is likely to be some rationalisation to create scalability on a vast scale never seen before.


Colin Fowler
Director, Private Sector Services
Capita Hartshead
Fowler has over 17 years’ experience in occupational pensions, within both the public and private sectors, the vast majority of which has been in scheme management, both in-house and outsourced. Much of this work has had an emphasis on IT solutions, project management and strategic service delivery. In his current role Fowler has overall responsibility for the delivery of private sector administration services across Capita Hartshead’s 12 administration sites.

1. Automation brings efficiency to admini-stration processes, but its use is driven by the people undertaking the job and their approach to technology. By completing repetitive tasks, automation frees up resources to allow staff to focus service delivery on quality, accuracy, and timeliness. It also improves accuracy by reducing the possibility of human error in complex tasks.
However, users must not become over-reliant upon systems. Invariably, in the most successful environ-ments, excellent technology is accompanied by excellent people, all within a robust framework of management controls.

2. At first glance, take-up appears low. Despite the renewed focus on retirement provision sparked by the pensions crisis, there is still a profound inertia among employees, reflected in low take-up rates for all forms of communication. However, the number of web-based enquiries now far exceeds the queries relating directly to paper-based communication.
The power of the web is the ability to present complex information in a digestible form. Add the ability to request information, change personal details and transact investment switches and you have the essential ingredients for an alternative to paper or the telephone. Significantly, the trend is catching on among scheme members – our website for the Principal Civil Service Pension Scheme ap-proached 4000 hits in 2006, an increase of 52pc on 2005, while the Teachers’ Pension Scheme website saw an increase of 18pc.

3. The pensions industry must embrace the notion of straight-through processing (STP). Not to do so would be an opportunity missed. In a world increasingly driven by cost and the need to provide “solutions” rather than just service, STP represents what many consider should already be part of the DC landscape. The Via Nova project, driven by the two biggest admini-strators and two of the biggest investment managers, provides the opportunity to make STP a reality across the industry.

4. For any TPA to be truly competitive, it must have the ability to partner with asset managers to deliver an investment vehicle to clients. This may be presented as an “unseen” back-office function, but nevertheless the fundamental components have to be in place. This will include systems, processes and people specialising in this type of volume business; indeed, a sophisticated web offering is a prerequisite, as is capability to deliver STP. While there will remain a market appetite for more traditional solutions, administrators must provide for the full spectrum of client requirements.

5. It seems likely that increasing polarisation within the TPA market will take place. With personal accounts on the horizon, there will be increasing pressure to deliver efficient solutions at low cost.
To survive, TPAs will need to be highly flexible, posses-sing significant resource to meet the challenges of a changing pensions landscape and adapt products to changing demands. “Off-the-shelf” offerings will become increasingly attractive.
TPAs that can offer such economies of scale will tend to be the larger players, who already dominate the market and who will undoubtedly be competing for future domination.


Brian Critchell
Senior account manager
Xafinity Paymaster
Critchell is head of account management for Paymaster’s statutory and public service schemes and responsible for the company’s technical development team. He has 40 years’ experience in pensions, half with a major global consulting firm. He is a fellow and council member of the PMI, a regular speaker and contributor on behalf of both the PMI and Paymaster.

1. Phantom phone calls and recorded touchtone menus are classic examples of technology reigning supreme. Do we feel good at the end of it? No, people are pivotal to providing a good service. In particular, specialist staff with an understanding of the company, the scheme and the type of enquiry they might get from members.
Companies with well-trained staff provide the best service, with the appropriate support delivered through the effective use of technology. Why is John Lewis Britain’s favourite shop? Because well-trained, well-managed staff provide an efficient and effective service, with the appropriate technical and systems support.

2. Take-up of web services is notoriously poor, often less than 1pc of scheme membership. Peaks tend to coincide with other scheme events like the issuing of the benefit statements or when a company’s flexible benefits annual selection is open.
There are exceptions. Members approaching retirement often visit more regularly than others. More IT-confident staff will visit and use more often. Regrettably, the majority of DC scheme members opt for the lifestyling option and leave their benefits untouched year after year.
Typically people start to show an interest in their pension fund when it becomes big enough to buy a significant item like a car, or on a life event. Once interested the question becomes how to keep them interested in managing their pension money, whether through the web site or other methods.
The key functionality will give them instant access to the facts and figures that matter to them, depending at what stage of the lifecycle they are at.
Younger members will want to be able to see what difference their current level of contributions will make in the future. Older members will want to see more clearly what their fund will be able to provide for them at retire-ment. A simple retirement modeller might be sufficient. Nothing should be too com-plex, as over complication will turn members off and the support such a modeller could provide will be wasted.

3. A representative industry group led by LGIM and BGI is making good progress. Once established as a standard service, I believe all TPAs will follow, but all investment houses and life offices must fall in too, or it won’t work.

4. No. The large, multi-service firms will obviously need revenue stream to replace loss of income from consulting. Specialist TPA firms could, however, offer a lot to the contract DC world, but for the restrictions in the governing legislation.

5. I think there will be some consolidation as the number of schemes decreases. The speed of consolidation will be affected by the cost of providing the underlying technology supporting the growth in DC administration, the acquisitive nature of some companies, the rate of decline of the DC trust market, and the impact of legislation and personal accounts.
The recent TPR scheme survey shows how big and diverse the market still is. So, I believe there will always be room for a boutique administrator alongside the larger TPAs.