Schemes face series of admin hurdles in 2014

Administrators’ non-core workloads have risen by between 10 per cent and 25 per cent due to pensions liberation, depending on the level of investigation carried out, estimated Margaret Snowdon, chair of the Pensions Administration Standards Association.

“Some trustees pay for the work, others do not,” said Snowdon. “Hopefully a standard approach to due diligence will make it simpler and clearer who is responsible for member protection.”

But she added that pressure to deliver fast means errors can arise, especially in schemes where data are generally of a poor standard.

Poor records were historically less of an issue as they could be resolved at retirement or when a member leaves a scheme, but regulatory initiatives and the desire to derisk has pushed it up the scheme agenda.

Clive Witherington, head of sales in the technology and administration solutions group at Towers Watson, said: “In 2014 we anticipate more employers wanting to look at derisking defined benefit liabilities, and so accuracy and completeness of data will remain a challenge, especially if the derisking involves deferred [members] and pensioners who left service or retired some while ago.”

When it comes to buy-in and buyout transactions, data quality becomes an important factor in how these deals are priced. This means comprehensive membership data are “critical”, said Mark McNulty, head of UK institutional at State Street Global Advisors.

He added: “Admin processes in recent times are much better, but it tends to be membership data from M&A activity and multiple data sources that creates issues for schemes.”

Managing legislative change

In addition to derisking, contracted-out schemes will have to deal with guaranteed minimum pension liabilities from 2016. Witherington said he will be starting this process with some DB clients in the new year.

The reduction in the annual allowance is also likely to cause problems when it drops to £40,000, catching some members with an unsuspected tax charge.

Daniel Taylor, head of administration services at Premier, said: “DB members, particularly middle earners with 10 years’ service or more, may get a nasty surprise.

“There’s been a focus on higher earners, but those who receive a significant pay rise with service may be hit.”

Taylor also highlighted the abolition of short-service refunds from next year, which will require changes in processes and significantly increase overheads for small pots, with “no effective mechanism in place to do anything with these pots”.

Lesley Carline, a director at Kim Gubler Consulting, said the growing pressure on administration service providers is caused by the changing nature of administration.

She added: “Many schemes are looking at exercises that require very specific skill sets, for example as they move towards derisking and buyout – but have administrators got enough of this type of resource in place?”

Administration has long been the target of cost cutting, with providers pressured to drive down fees. But Robert Branagh, managing director at Moorlands Human Capital, said an underinvestment in administration infrastructure was undermining professionalism and quality.

“DB and defined contribution schemes are facing an almost untenable convergence of legislative change, negative commentary, overwork and under-resourcing,” says Branagh.

“A lack of quality and motivated resource in the administration profession – both among the leadership and the staff – will cause major headaches for schemes in 2014.”