This year's survey reveals how schemes assess the efficiency of TPAs and ranks the key providers. Holly Roach reports
This year's PP Administration Survey gathered data from respondents in both the public and private sectors, and across a range of different scheme types.
The majority of respondents (75%) were responsible for defined benefit (DB) schemes, with the next greatest proportion (14%) managing defined contribution (DC) schemes. Other scheme types, such as hybrid schemes and group personal pension schemes, make up the remainder of those represented in the survey.
This year's findings show a significant change from the previous year in the proportion of respondents holding their administration in-house versus those who outsource. This year, just 10% of schemes are keeping their administration in-house compared to more than a quarter (27%) in 2018. Schemes in our survey largely outsourcing their administration had been steadily rising as a proportion until last year saw a drop, with 73% outsourcing, down from 81% in 2017. However this year, schemes outsourcing their administration has risen back up and reached 90%.
We received responses across a whole spectrum of schemes in terms of capital value of funds.
Almost a fifth (19%) revealed the capital value of their fund was more than £1bn; a further 10% of schemes were worth between £500m and £1bn; and 20% of schemes had a value between £100m and £500m.
Respondents to the survey also included smaller schemes, with 23% of respondents stating their scheme's worth as less than £25m, while 26% of schemes were worth between £25m and £75m.
The status of respondents' schemes varied, with 28% of schemes remaining open while 27% are closed to new entrants. A further 45% of schemes in the survey are closed to future accrual.
What are the reasons behind the decision of just a tenth of respondents to keep their scheme's administration in-house? This year, similarly to 2018, the primary driver cited was quality of service. Technology was ranked as the second most important reason, while cost control slipped from third place last year to eighth this year.
While some schemes choose to keep their administration largely in-house, they do often need to outsource some aspects of it. Schemes who have in-house administration commonly choose to outsource elements such as actuarial support (58%), additional voluntary contributions (32%), DC scheme arrangements (16%), and communication (16%). Reasons cited for outsourcing some elements include expertise and actuarial requirements, while cost pressure is a driver for 45% of schemes to outsource their administration.
Rating software providers
We asked those who kept scheme administration largely in-house to let us know how important certain features are when it comes to evaluating administration systems. Eight attributes were chosen, with respondents asked to rate them on a scale of one to five, with one being not important at all and five being essential. An average of these scores was then produced to put together a ranking of the most important features of administration systems.
Data accuracy remained the most important criteria for another year, with 87% citing this as essential, culminating in an average score of 4.87 out of five. This was followed in the same order as 2018's survey by reliability of the systems, which scored 4.77, and good customer service, which scored 4.45. Value for money overtook technical support this year, scoring 4.35.
Innovation was the least important criteria to in-house schemes when evaluating administration systems, with a score of 3.48 out of five.
We also asked survey respondents which software providers they rated most highly.
Altair got the top spot for another year, with an overall satisfaction score of 3.49, followed by administrator Aquila (3.32) and then Equiniti Pensions' Compendia Touch software with a score of 3.27 out of five.Outsourced administration
We then moved on to those schemes that choose to mainly outsource their administration.
We asked their reasons for outsourcing their administration, with respondents citing technical expertise as the most common reason. This was followed by insufficient internal resources while providing a better service to members was also important to these schemes.
Of the survey participants whose schemes outsource their pension administration, a considerable number continue to administer some parts of it in-house. Communications was the most popular element to keep in-house and was cited by nearly half (48%) of those who answered.
Other important elements to keep in-house include accounting (34%) and finance (29%).
Respondents were then asked to rate important factors in assessing the efficiency of third-party administrator (TPA) systems. Again, as with in-house systems, participants were asked to rate a number of important factors on a scale of one to five, with one being not at all important and five being essential to them.
Data accuracy remained to be seen as the most important criteria scoring an average of 4.9 out of five. Reliability followed scoring 4.85 and good customer service came next with a score of 4.78.
We went on to ask survey participants which TPAs they currently use or had experience of working with. XPS Administration led responses, currently being used by 58% of respondents and a further 12% having had experience of working with it. Other TPAs with high response rates include Mercer with 44% using it currently or having had experience using it, as well as Barnett Waddingham and Capita Employee Benefits with schemes currently using these providers sitting at 17% and 9% respectively.Participants were then invited to rate the TPAs they had experience of working with. Once again, the importance scores discussed above were used to weight the satisfaction ratings in order to produce a more accurate picture of the market's leading providers. In terms of satisfaction scores among TPAs, XPS Administration came out on top with an overall score of 4.15. It was followed by Barnett Waddingham with a score of 4.09, Premier Pensions at 3.66, and Trafalgar House (3.59).Cost of administration
We asked our survey respondents whether their administration costs had increased or decreased over the past 12 months. More than half (52%) said their administration costs had risen over the past year, while just 8% said they had fallen. The remaining 40% thought costs had stayed the same.
Finally, we asked survey respondents what factors would have the biggest impact on the pensions industry over the coming two years.
Perhaps unsurprisingly, the most frequent responses mentioned the consequences of Brexit and the guaranteed minimum pension equalisation process. Other key factors linked to legislation issues and scheme consolidation.
Auto-enrolment, the pensions dashboard, and environmental, social and governance factors were other issues at the forefront of our survey participants' minds.
To read the full report as well as receive a full run down of what schemes think of the different providers and systems in the market contact Liam Barrett on 020 7484 9977 or [email protected]
PP Administration Survey Methodology
This report details the findings from the 2019 Professional Pensions Administration Study, designed to track industry attitudes towards both in-house and outsourced pension scheme administration.
The study was conducted by Incisive Research on behalf of Professional Pensions. The overall aim of this research was to measure the different experiences of schemes using in-house and outsourced administration functions.
Some 322 pension professionals in the UK responded to an online survey, which ran throughout March 2019.
Overall, 51% described their occupation as a trustee and 23% were pension scheme administrators or managers. The remainder of respondents' occupations included CEOs, financial directors and HR directors and managers. Where possible we have tried to compare this year's results with the previous surveys to get a sense of any emerging trends and themes.
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