TPR seeks to extend supervision to select administrators

The watchdog is now making enquiries at the top 75 outsourcing companies and in-house teams in the country, to identify those with which it will seek further engagement. It said the final list could be ready by the end of this year.

Historically neglected and under-invested by some pension schemes and employers, data-dependent projects such as the pensions dashboard and improved defined benefit transfers mean the administration sector is starting to come under more intense scrutiny from regulators and politicians.

The regulator has identified key areas of focus for its interaction with strategically important administration teams, including trustee relationship management, handling of client transitions, data quality controls, due diligence on scams, member communications, resourcing and training, business continuity and cyber resilience.

“TPR has a statutory objective to promote good administration,” the watchdog’s executive director for regulatory policy, David Fairs, told the Pensions Administration Standards Agency’s annual conference on Tuesday.

He called administration a “Cinderella issue” that has been overlooked, under-prioritised, and in some cases ignored.

“Administrators have a critical role in securing good outcomes for savers,” he said. “Over the next couple of years, we will be looking to build strong relationships with a handful of strategically important administrators.

“By engaging directly with administrators, we feel we can better understand the issues facing them and identify risks.”

Time to act on areas of weakness

Mr Fairs said the watchdog will expect to hold regular meetings with those companies or in-house teams assessed as being of strategic importance, although he conceded that the regime will have to be voluntary as it falls outside of TPR’s remit.

“We don’t have any formal powers over administrators, but it shouldn’t take formal powers for us to work together,” he said, adding that the regulator would try to build on best practices identified by industry groups, rather than replicate their existing work.

The regulator’s intervention comes at a time when several key developments mean lower-quality administration businesses risk being found wanting. On Monday, research by PensionBee found that missing or inaccurate data means savers may only be able to locate six out of 10 pension pots when the pensions dashboards are launched.

Mr Fairs accepted that often poor levels of data quality and automation are down to schemes and employers’ reluctance to pay for good-quality services, but said that hefty fines of up to £50,000 for non-compliance should shift this mindset.

Pensions and financial inclusion minister Guy Opperman “thinks that all administrators have been doing nothing else since last summer”, said Mr Fairs, highlighting the expectations placed on the industry.

DB transfers should take less than 20 days

The administration industry is taking its own steps to protect its reputation, with PASA now consulting on a new code of practice on handling DB transfers. The code will include templates for standard procedures when processing member requests.

Building on the organisation’s guidance published in July 2019, the voluntary code will seek to ensure that quotation and execution of standard transfers can be completed in fewer than 20 days, leaving the rest of the six-month statutory time limit for members and their financial adviser to consider the transfer carefully. Some transfers currently take up to 10 months.

PASA president Margaret Snowdon said it was important to make sure transfers are safe as well as fast, urging schemes and administrators to use the Pension Scams Industry Group’s code of practice to aid their due diligence.

Transfers are “where our reputation ends up in tatters if we get it wrong”, she said.

With initiatives such as Star, which measures and ranks administrators’ performance on defined contribution transfers, threatening to turn to the DB sector, Ms Snowdon said now is the time to act.

She said automation of processes might be worth reconsidering as a way to limit the time spent on simple steps like calculations, while administrators should take ownership of the entire process and communicate with members clearly at every stage.

“We want to set out clear expectations to members and other stakeholders as to what transfers ought to look like and how they ought to move forward, and, importantly, keeping people up to date if we vary from that,” she added.

Ms Snowdon welcomed the regulator's desire to develop a better relationship with the sector, and at least one prominent administrator said they were happy to help inform the watchdog.

Chris Tagg, a partner at Barnett Waddingham, said TPR has used criteria such as the number of staff employed and the number of members served as metrics to drive its decisions on which administrators to engage with.

"I don't think it's scrutiny, it's education," he said. "They're looking to learn from us as to what our challenges are, how we're being guided to act and remunerated by our clients."

He said that while in many areas administrators are limited by what clients are prepared to pay for, the compulsory nature of dashboard compliance puts more responsibility on service providers: "There's an onus on the industry to get our systems and data compliant, and to a certain extent the costs will be passed onto clients."

PASA’s consultation on its code of practice for transfers is now open, and closes on April 30 2020.