Girish Menezes has over 15 years of experience in the UK HR & Pensions industry with a focus on business strategy, proposition development and operational delivery. He has a Masters in Management from the London Business School and is the Chairman of the Pensions Management Institute, London Group.

Trustees have had a laser-like focus on reducing pension administration costs over the last few years. Comparing KGC associates recent administration survey with a similar exercise run by another firm about a decade ago, they have successfully reduced administration prices by between 17% and 28%, depending on size of scheme.

Members 2015 (Average) 2005 (Average) Reduction

200

£ 31,081

£ 37,368

17%

1,000

£ 63,840

£ 84,435

24%

5,000

£ 174,716

£ 237,704

26%

10,000

£ 282,339

£ 393,423

28%

20,000

£ 471,221

£ 656,679

28%

Given the advancements in technology, offshoring of processes and streamlining of operations, this should be expected. However, the overriding view at the launch was that trustees do not pay enough for their administration and are sacrificing quality of service. So how can trustees drive their costs down without losing value?

1. Implementation is not a free lunch

Administrators rarely charge full price for implementation and increasingly do not charge for implementation at all for smaller schemes. However, a quality implementation can set the scene for the entire relationship.

This is the period that Trustees and the pension administrator build the basis for their relationship: agree governance, verify data, audit the benefit specifications, automate calculations and so on. Trustees should expect to pay for implementation and work closely with the administrator through the process.

2. Efficient administration needs clean data

There have been huge leaps in the world of technology, but these are limited by the quality of their data. The Pension Regulator expects some minimum standards to be maintained and the need to complete GMP reconciliations is going to go a long way toward where we need to be.

Delaying the data cleanse postpones any cost benefits that could be received via technology. Of course, it is important to verify that your administrator does in fact administer your scheme on a platform that can leverage your investments in the data cleanse process.

3. Empower your members

Members increasingly want online access to their arrangements and this improves transparency, as well as reduces costs. However, it is important to conduct research among your members to understand specifically what they want delivered and this needs to be translated into a clear plan. The benefits of the portal needs to be clearly at launch, just-in-time education is important at life events, communication needs to include email and online functionality should match member requirements. Only then can administrators drive members toward self-service and deliver lower administration charges.

4. Pick the right location

Love it or hate it, organisations are global and tend to centralise functions offshore to reduce costs. However there can be inherent issues with these locations, with greater issues for pension administration than most. Data protection laws for example need to be dealt with, making locations within the EU more convenient.

The complexity of pensions means senior administrators should preferably have industry-recognised certification and at least two years of UK pension administration experience prior to them becoming efficient. Setting up an offshore team from scratch is therefore difficult to initiate. However, offshoring even quick wins such as technology development, changes of address and quarterly reports can reduce overall administration costs by 10% to 15% annually.

5. Don’t buy on price alone

Member and Trustee requirements have grown over the last decade; expecting member web services, improved member communications, shortened turnaround times, better reporting, improved accuracy and so on.

Further, salary, property and other operational costs have gone up. Therefore, unless you and your administrator have invested substantially in improving data quality, member self-service, technology platforms and locations, you are likely to sacrifice quality if you drive down costs to market benchmarks.

Following these principles, Trustees can identify potential issues and ensure that they do not end up being an unprofitable and therefore lower priority client.

The days of pension administration being a back-office support service are long gone, when profitability depending upon cross selling actuarial services or high-margin projects. Trustees need to ensure their administration team is being appropriately rewarded for the work they do as this will translate into the investment in people, processes and platforms this service depends upon and therefore a high quality and cost effective service for their members.

Girish Menezes