Hewitt Survey Says Cost and Quality are Top Priorities for Pension Scheme Administration
24 July 2009
Hewitt Associates, a global human resources consulting and outsourcing company, has released the results of its Pension Administration Survey 2009, which highlights that the current economic downturn is driving UK pension schemes to make clear priorities of cost and quality in the way their schemes are administered.
The Hewitt survey polled 143 UK schemes of which 89%, when asked to name their key focus both now and in the next two years, cited reducing operating costs as their number one priority. The survey also identified three other key targets for schemes: improving the quality of administration (69%), sustaining activity (62%) and meeting regulatory requirements (40%).
The results demonstrate that, while economic pressures are forcing schemes to consider means of reducing costs, there is a determination that the recession should not be to the detriment of maintaining and increasing the quality of pension administration. As a result, many schemes are reconsidering how they approach pension administration overall.
Priority one - reduce costs
In an effort to meet lower cost targets, 33% of the respondents confirmed that they are currently reviewing their outsourcing strategy. Over half of the respondents cited the opportunity for cost savings, including controlling future and current technology expenditure, as a key reason for outsourcing.
Ian Terry, pension administration business development manager at Hewitt Associates, said: "Shrinking budgets coupled with an uncertain economic outlook are forcing a wholesale revaluation of all service agreements - companies need reassurance that they are being offered value for money.
"Pension administration is definitely not exempt from the effects of recession and many schemes are treating it as an opportunity to reset their priorities and push for more intelligent solutions and a better deal."
Hewitt research has shown that a typical scheme with 20,000 members could hope to save in the region of £100,000 to £150,000 per annum by outsourcing administration to a third party.
Priority two - sustain current levels of activity
The Hewitt survey highlighted the need for pension schemes to reconsider the ways in which administrative and governance-related activities are distributed. 62% of the respondents identified sustaining current levels of activity as one of the top three pressures within their organisation and 25% cited it as their single biggest pressure.
Traditionally, while scheme administration may have been outsourced to a third party, duties such as governance of the day-to-day support from the administrator and organisation/provision of documentation for trustee meetings were retained in-house. However, this model is likely to change in the face of current economic and legislative pressures.
Mr Terry said: "Combining this complexity with the commercial pressures that schemes are currently facing, the new mantra needs to be 'doing more and doing it better at lower cost'. Part of the solution lies in better segmentation of the workload - making sure that the right people do the right work and enabling in-house resources to concentrate more on the strategic activities.
"Using a tiered approach to administration presents the opportunity to create a solution that separates the repeatable tasks from those that are more complex and that demand a more tailored approach. This segmentation is a vital element in building an appropriate solution that can really make a difference to improving quality and efficiency, as well as delivering customised solutions where they can have the greatest effect."
Priority three - improve quality
The need to improve quality and services was highlighted as a key reason for outsourcing by almost three quarters of the respondents. Almost all the respondents singled out service quality as a critical factor when choosing a third party provider.
Conversely, poor quality of service and the lack of flexibility act as the main barriers to outsourcing. Some 69% of respondents predicted that improving quality would be one of their three top priorities over the next two years; 11% said this was their single largest pressure today and 18% expected it to be their top pressure within one to two years.
Mr Terry said: "As with any service industry, members' expectations of service continue to rise inexorably. As schemes close and the number of active members decreases, there is increased pressure to provide the means to stay in touch through more use of self-service solutions. It is essential not to alienate members through slow, difficult to access, mediocre or poor service.
"The reality is that four in ten schemes still do not use a website to provide information to members and only one in four schemes provides individual members access to their personal benefit records via a website. Providing web solutions that allow members to access information easily - to make transactions, to manage their investments and to model future benefits at their convenience, improves the service experience and also potentially reduces the costs of administration."
Priority four - meet regulatory requirements
The increasingly complex legislative landscape is leading many schemes to review their existing arrangements. This is a growing priority, especially as regulations and guidance from the pensions regulator are putting the spotlight on companies and trustees to provide greater visibility around the management and governance of pension schemes.
In the Hewitt survey, 40% of respondents identified meeting regulatory requirements as a top three pressure – both now and over the next two years. This is likely to be one of the drivers that prompted 90% of respondents to state that in-depth pension expertise was significant when choosing an administrator.
Mr Terry said: "Trustees have to focus even further on evolving legislation, compliance and issues such as data integrity. Given the multitude of competing priorities, companies are looking increasingly at outsourcing as a mechanism to shift some of the burden and to allow them to focus on their core business operations."
