The sector is responding to changes including the GMP equalisation ruling, data protection and increasing demand for administration services. Holly Roach looks at what this year has in store.
Administration in the pensions industry is facing huge challenges, especially given issues such as the landmark ruling on equalising guaranteed minimum pensions (GMPs).
This year, a key challenge will be the ever-increasing demand for services and the reduced number of firms in the industry dealing with administration alone. Firms are being selective and turning down new business due to the rising demands.
There are high volumes of requirements but the staffing and costing models in pension administration are not built for these volumes.
Capita Employee Benefits client partner Geraldine Brassett tells PP: "Since the introduction of freedom and choice, many administrators of DB schemes have seen a significant increase in the volume of member cases, especially requests for CETV quotations."
She continues: "In some instances, administrators are working with contracts that reflect the position before freedom and choice and therefore the fees in those contracts are not reflective of the levels of work now required."
A premium has been placed on value and quality of service, and communication and client relationships must not decline as the demands increase. The challenge is dealing with the desire to drive down costs without compromising the quality.
Premier Pensions Management head of pension administration Girish Menezes says: "Trustees are trying to drive down costs but still expect the same levels of service, or more often more." This is not a financially viable option for many firms.
Barnett Waddingham partner and head of pension administration Paul Latimer says: "Some firms are doing less, or no, administration-only work as it is less profitable than when combined with full services such as actuarial and investment consulting."
Willis Towers Watson's head of technical pension administration operations Brendan Mooney says: "UK providers face increasing demand for services and processing member level activities while accommodating high levels of project work at scheme and industry levels. This all increases demand for capacity in a market where experienced resources are limited and skills shortages exist across the industry."
There is a strong focus on data security in administration and consolidating the high volumes is a challenge. Latimer suggests: "Administration is the glue that holds pensions together."
With cyber-attacks in a number of industries now increasing, firms must be vigilant about their online security. Administrative firms are always looking out for scams and protecting individuals' data and investments from scammers and online hackers.
Local Pensions Partnership head of business development James Wilday says: "The challenge faced by pension scheme administrators is actually obtaining accurate data from scheme employers, ensuring that robust methods of collecting data, including online solutions with auto verifications are built in as well as reviewing data accuracy using the available tools in the market."
He calls on administrators to ensure that schemes are complying with the pension regulator guidance on good record-keeping.
"It is now, more than ever, important to ensure that pension scheme data is as accurate as possible," he adds. "Missing or inaccurate data can lead to inaccurate assumptions by the actuary, which can lead to inaccurate liabilities being recorded against the fund."
Another challenge for pension administration comes since the GMP equalisation. Last month the High Court ruled that guaranteed minimum pensions (GMPs) must be equalised between men and women, and arrears paid. This is potentially a massive exercise for everyone in the industry.
Mooney says: "Pension administration processes need to be amended to meet the immediate requirements (for example member communications) and to provide the longer-term solutions for benefit calculations and settlement."
Underpayments will be relatively simple to rectify, while overpayments will prove more difficult to navigate through. It will take significant time to rectify the issue and firms must align to secure the best outcomes for their members.
The use of technology and online environments may provide help with GMP reconciliation, as Mooney explains: "Quick solutions such as websites to provide simple and informative guides on GMP equalisation are great examples of using technology to address current topics and avoiding high volume and time consuming communication exercises."
Yet it seems some firms are unwilling to use online services, as Menezes says: "Some trustees want to encourage engaging with members online but are unwilling to collect email addresses because they believe it's not secure." This may create more work for administration firms and could be a challenge due to firms already being spread thin because of the increased pressures on the industry.
Given these issues, administration in the pensions sector has a challenging year ahead. Priority always remains with members and beneficiaries of schemes, so a solution to overcome the challenges must be established soon.
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