Changing administrator: work on an unhappy marriage or file for divorce?

Any marriage requires trust and confidence from both parties in the other for it to work. If the faith of either party starts to wane, it could be tempting to file for divorce and start over.

But divorces are not cheap, are often longwinded and the worst ones can air things in public that both parties would prefer to keep private. There is also no guarantee of future happiness.

The equivalent in the pension world is changing third party administrator (TPA). When trustees are fed up with their TPA, they could be tempted to break off the relationship. But is this always the best course of action?

Stay together

Cosan Consulting head of trustee services Donna Hobbs believes not. Speaking on a Pensions and Benefits UK panel, she said dumping the incumbent TPA was not the silver bullet to slay all administration problems.

"There is a time and a place to move provider, for instance when the client's needs are not met by the provider anymore," she said. But the wave of change unleashed by pension reforms has made switching providers more risky, she added.

Indeed it could be better in some cases for schemes to work on fixing a relationship with an existing TPA rather than starting all over again. Hobbs said: "As we all know, every scheme is completely different but by moving providers you lose so much knowledge and experience. With all the pensions freedoms, technical knowledge and mental map of that knowledge is more important than ever.

"Try to fix the problems at the provider and identify exactly what the next steps are going to be so the providers can work with the trustees to try and maintain the relationship. At the end of the day it reduces risk. So the knowledge is maintained and the data has not been transferred."

Hobbs's view is supported by the difficulties of Now Pensions and MyCSP. These two examples are cautionary tales of the problems that can come after switching TPAs.

Part ways

But sometimes relationships get to the point where they cannot be saved. Speaking on the same panel, Barnett Waddingham head of pensions administration Paul Latimer said: "We should try to get to the bottom of issues and fix them if we can but sometimes things do break down completely."

Some in the industry have been worried about additional demands put on administrators regarding the flexibilities. Latimer observed it was important to ask who was buckling more under the pressure: the TPAs who were losing contracts or TPAs who were winning them.

He said: "If there is an issue out there for some of the TPAs then we are happy to pick up the work. But then you are back to do we have the capacity to do the work? We are seeing tenders come in left, right and centre at the moment and the question is why? Is it because the service is that bad or is just a governance, a tick box exercise? Or is it a mixture."

A good starting point for trustees to analyse their relationship with TPAs is to ask what they want from it, Latimer said. "The question for trustees and employers is: what is your appetite to pay for this? Do you want a high quality administration service or do you just want something cheap and cheerful? Then you have to ask where do you want to go with this? Should you work with your existing TPA or have things broken down so much should you move? And then the question is where to?"

Investment needed

Premier pensions managing director Paul Couchman said the challenge for trustees went beyond choosing to whether to stay with their current TPA.

He said: "A lot of these big consulting firms have profit margins which are quite significant and their view on admin is quite different because you cannot generate 20%-30% returns on admin; it just is not that type of business. It is just a lower margin business. We have got a marketplace out there in admin where we have some very big players.

"But they have some major issues to sort out, whether it is technology or data. Some of them are providing a good service but clearly those businesses are under pressure. And you put trustees in a difficult position when they are looking at the service they are getting. They have got to decide whether they can afford to move and what are the costs of moving."

It seems these legacy and investment issues in the administration market cannot be solved easily or quickly. Trustees could still face a demanding relationship with their TPA whether they choose to stay and work on a difficult relationship, or look for happiness elsewhere.

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• Topics
• Admin / Technology
• PMI
• Paul Couchman
• Barnett Waddingham
• MyCSP
• PBUK