UK in-house administered schemes are on average 14% more expensive than outsourced schemes, a new survey shows.
The study also reveals that three-quarters of UK pension schemes have considered outsourcing their administration because of the rising cost of provision.
The report - carried out by pension administration company Capita Hartshead - showed that 46% of schemes had already outsourced their administration. Of those, the majority cite reduced administration, access to specialist staff and the ability to keep up with legislative changes as key reasons for the move to outsource.
The report showed two-thirds of all schemes surveyed believed there will be a continued move in favour of third party administration in the years ahead compared with only 50% of schemes in 1994.
Perhaps of most concern to the report’s authors was that a third of schemes currently fail to measure adequately the cost of their in-house administration – a figure which has remained static for the last eight years – and only 39% of schemes knew their per head cost for administration and management.
Capita Hartshead business services director Mike Addenbroke said: “It's disturbing that while so many schemes complain bitterly at the extra costs being placed upon them, more than a third who retain scheme administration in-house are still neglecting to cost their own administration services.
As a result, they risk losing the tens or even hundreds of thousands of pounds which can be gained through improved productivity and economies of scale.
Capita Hartshead technical director Stephen Ingamells said that there was no obvious reason for the third of schemes surveyed persistently refusing to cost their administrative services.
He added: “Perhaps the schemes feel threatened, or perhaps they feel that they don’t have the tools to undertake that sort of cost-benefit analysis.”
The report also said that 45% of schemes have seen pension administration and contribution costs grow at a faster rate than other business overheads over the last five years.
According to the schemes consulted the rising costs were resulted from the abolition of the advanced corporation tax, smaller surpluses, low inflation and the increasing maturity of scheme members. The growth in the cost of compliance was cited as a secondary factor.
The report – Capita Hartshead’s eighth annual pension scheme administration survey – covers schemes with more than £176bn in collective assets and represents a third of all members of UK pension schemes.
By Alistair Graham
Paul Budgen is set to join financial technology and auto-enrolment (AE) firm Smart Pension as director of business development.
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