More than one in four (26%) large employers – equivalent to over 2,000 of the UK’s biggest businesses – are looking to bring in outside expertise to help manage their pension schemes in the next 12 months, according to new research by Ross Trustees.

The findings, from research among more than 500 UK senior business leaders heading up large companies with 250+ employees, suggest increasing pensions regulation and pressured budgets are the key factors driving this change.

Geoff McKenzie, trustee director at Ross Trustees, said: “Our findings demonstrate that increasing numbers of employers are looking to outsource their pension scheme management when looking to fill vacancies, anticipating that almost two-thirds will do so over the next five years. This is also reflected in our experience with some of our existing clients.”

Over the next five years, nearly two in five (38%) employers that currently manage their company pension schemes in-house plan to outsource this responsibility. With 25% of large businesses already doing so, the next few years could see over 3,000 more companies embracing outsourcing, representing a change in how pension schemes of the future will be managed, the consultancy stated.

As there are 10,000 large companies in the UK according to the most recent official statistics, this could mean that as many as 5,500 employers – more than half (54%) – will be outsourcing their pensions management function over the next five years, Ross Triustees said.

“This represents a shift in how businesses are needing to respond to today’s economic and employment challenges and the implications for pension schemes. External expertise not only provides employers with comfort that their pension schemes are managed by experts who can maintain pace with changing regulation, but also alleviates possible staffing continuity issues,” McKenzie said.

The firm’s research indicated that employers are opting for external expertise to oversee their pension scheme management. This follows previous trends to outsource the core pension administration function, it added.

Continually increasing governance requirements from The Pensions Regulator and recent enforcement policies, as well as the looming pensions dashboard deadlines from 2023, are likely to be among the developments giving employers pause for thought as to whether other options can help ensure full compliance with the shifting pensions landscape, the firm said.

Ross Trustees explained that many schemes enlist external support to benefit from specialist knowledge and help to navigate change in the pensions sector, providing additional comfort that standards are being maintained. This can be flexible support for ongoing pensions management, as well as resource for ad hoc pension projects.

Staff turnover and talent gaps

Employers are also contending with significant levels of staff turnover, leading to gaps in internal specialisms and struggles to replace former talent. The UK has experienced an unprecedented shift in employment trends, with official statistics estimating that there are at least 53,000 vacancies in financial and insurance service roles, the highest since 2001, Ross Trustees noted.

Firms are increasingly concerned that they will struggle to replace their internal pensions managers, if they leave or retire with over one quarter (26%) of large companies’ pensions management impacted by loss of staff over the last year.

The survey findings also showed that nearly one in 10 (8%) large employers have not considered what they will do if their current pensions manager retires or leaves.

Thanks to low unemployment, over a quarter of companies have said they will look to bring in external expertise for their pensions management solutions, helping them to overcome a potential skills shortage and ensure requirements continue to be met.

With the pensions industry currently under a regulatory magnifying glass, due to changing pensions governance requirements and enforcement policies, Ross Truistees is urging employers to ensure they are fully equipped for the future.

“Businesses which look to external providers may find themselves better prepared for the future should their current in-house pensions team move on,” McKenzie said.

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