UK - More than a quarter of UK defined contribution (DC) schemes do not have a so-called service level agreement (SLA) with their pension scheme administrators, a new Watson Wyatt study has found.
Additionally, the consultant's FTSE 100 Defined Contribution Pension Plan survey found just under half of contract-based schemes do not have such an SLA - a governance safeguard - in place.
Paul Macro, senior DC consultant at Watson Wyatt, told IPE today an agreement, for instance, covers the length of time it would take to perform a particular task, such as the time between the money being taken from the member's payslip and then finally invested.
"The idea with the SLA is everyone knows where they stand, and so the trustees or the sponsoring employer for the arrangement can judge the success or otherwise of the provider," said Macro.
The main consequence of not having an SLA in place is schemes do not know whether their administrator is performing at an appropriate level, he explained.
"The scheme's administrator has a key position, as the investment of the money is a key element and the longer it takes to get the money invested, the possibility on losing out on investment returns increases."
Accuracy is also at stake, added Macro: "If the records are not kept in an accurate way the members may not get the benefits they are fully entitled to."
Watson Wyatt found 74% of schemes have mechanisms for investment monitoring - 91% of trust-based and 33% of contract-based schemes - while 40% have mechanisms to generate member feedback, or 42% of trust-based and 33% of contract-based schemes.
According to Watson Wyatt, the relatively-poor showing for contract-based schemes is probably because, but not excused by, the fact only 28% of contract-based schemes in the survey have a governance committee to oversee the arrangement.
This is also reflected by a lower commitment to member communications by contract-based schemes with, for example, only 39% of contract-based schemes providing any sort of pensions newsletter, compared with 81% of trust-based schemes, argues the consultant.
The UK pension regulator advocates implementing a SLA, though there is currently no monitoring procedure in place, concluded Macro.
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