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Two-thirds outsource admin despite TPR fears

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  • Two-thirds outsource admin despite TPR fears

UK - Over two-thirds of employers with defined benefit (DB) schemes have outsourced their pensions administration to third-party providers, according to Aon Consulting, even as the UK regulator raised concerns about the level of skill among administrators.

Findings from Aon's Pension Scheme Administration Employer Survey showed the main driver for 19% of employers to outsource administration was an attempt to place more focus on core business than on the pension fund.

However, 17% of the 100 senior executives responsible for DB arrangements blamed a lack of in-house resources, and a further 17% admitted they had a lack of appropriate expertise while 13% said outsourcing was used to control costs.

Stuart Heatley, managing director of administration at Aon Consulting, claimed the survey results showed third-party administrators (TPAs) are an "attractive path" for many schemes, for both the financial and non-financial benefits.

He suggested the decision to outsource "shouldn't simply be viewed as a cost-cutting exercise but as a way of improving the service offered to scheme members," particularly as the pensions market is becoming increasingly complex following changes in legislation.

"The peace of mind brought from outsourcing to a specialist with technical expertise on tap, who will guide and keep its clients up-to-date as part of a large scale, managed process is likely to be of value to an increasing number of schemes," Heatley added.

The survey findings also showed of employers who offer a defined contribution (DC) scheme alongside a DB arrangement, only 15% rely on in-house administration for both schemes, while 12% keep DB schemes in-house and outsource the DC administration and 4% manage the administration of DC schemes internally and outsource the DB schemes.

That said, Heatley admitted despite the advantages "outsourced administration isn't the favoured route for all schemes", and revealed it will be "actively approaching in-house administration experts over the coming weeks to understand their motives and share best practice".

The results of the Aon survey follow the publication of a new consultation from The Pensions Regulator (TPR) on proposals to raise awareness of good record keeping for all workplace pensions.

TPR claimed poor administration could add up to 5% to the cost of buyout and slow down the entry of schemes into the Pension Protection Fund (PPF), and highlighted key areas to focus on were legacy data and a lack of common standards. (See earlier IPE article: Poor record keeping could add 5% to buyout cost)

The consultation also raised concerns about the "level of professional skills in a sector of considerable complexity".

TPR revealed only 64% of trustee boards 'always' include administration as an agenda item, and it claimed even if trustees receive an administration report, issues with data integrity are only likely to feature if there has been a problem, while trustees lack the technical knowledge of data requirements to be able to question the results.

The consultation suggested while some people have more than one of the relevant administration qualifications, "it appears that fewer than 15% of administrators employed by TPAs have a relevant formal qualification".

It added "while some TPAs offer substantial in-house training, the level of professional skills among administrators remains a concern in a sector dealing with considerable complexity".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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