UK schemes see outsourcing as key to admin cost cuts

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  • UK schemes see outsourcing as key to admin cost cuts

UK - Cost-cutting is the number one priority for UK pension schemes, according to the Pension Administration Survey 2009 from Hewitt Associates.

Hewitt polled 143 UK schemes, of whom 89% named the reduction of operating costs as their top priority, both now and over the next two years. The second most important key target for schemes was improving the quality of administration, identified by 69% of schemes.

In an effort to meet lower cost targets, 33% of respondents said they were currently reviewing their outsourcing strategy. Hewitt's own research has shown that a typical scheme with 20,000 members could hope to save around £100,000 (€116,000) to £150,000 per year by outsourcing administration to a third party.

Outsourcing is also being used as a way of improving quality and services, according to 75% of respondents. Nearly all singled out service quality as a critical factor when choosing a third party provider. Of those schemes polled, 11% said improving quality was their single largest pressure at the moment, while 18% expected it to be their top pressure within one to two years.

The survey highlighted the need for pension schemes to reconsider the ways in which administrative and governance-related activities are distributed. Just under two-thirds (62%) of respondents identified sustaining current levels of activity as one of the top three pressures within their organisation, while 25% cited it as their single biggest pressure.

Hewitt said that while traditionally 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 of trustees' meetings had been retained inhouse. However, this model is likely to change in the face of current economic and legislative pressures.

The survey showed that meeting regulatory requirements is another burden for pension schemes, with 40% of respondents identifying this as one of their top three pressures. Moreover, 90% said that in-depth pension expertise was significant when choosing an administrator.

Meanwhile, a call to increase the profile of pension fund administration was voiced by speakers at the Pensions Management Institute's (PMI) administration seminar The Key to Success, held in Sheffield earlier this week.

Sue Applegarth, managing director, MNPA, said: "Pension administrators can add value strategically. Data management exercises not only improve service delivery and reduce ongoing administration costs, but also allow better quantification of scheme liabilities. Knowing this would help trustees and sponsoring employers to better manage their schemes and could mean smaller deficits and lower contribution rates."

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