Is your scheme spending enough time on administration?

As a result of this, some experts have said administration issues can become sidelined as trustees spend time on other activities such as assessing investments. But how can trustees be sure they are dedicating enough time to the day-to-day running of their schemes?

Administration errors can be costly for schemes and their advisers – last month Pensions Expert reported stamp trader Stanley Gibbons spent £1.7m in legal costs after it tried to recover the cost of administration issues from a scheme adviser. 

There’s a duty on the trustees to oversee good governance, there’s also a duty on administrators to make sure their voice is heard

Fergus Clarke, PASA

Girish Menezes, head of pension administration at consultancy Buck Consultants, said the level of engagement with administration varies according to the size of the scheme, with larger schemes being generally more engaged.

He said: “On smaller schemes, administrators are often not even invited to the meeting.”

However, even where time is dedicated to looking at administration, Menezes said not enough focus was placed on how to improve processes and systems.

“There’s so much we can do to improve administration, but almost no time is dedicated to that, it’s all focused on errors.”

“The focus should be on 'how do we get the trains running on time?' rather than just ‘why was that train late?’,” he added.

Low cost, high impact

The administration costs paid by a scheme are typically a fraction of those paid towards investment, but Fergus Clarke, board member of the Pension Administration Standards Association, said it was as important in the running and risk of a scheme.

“It is as impactful as the funding or investment position,” he said. “Poor administration, or administration which is not subject to appropriate governance, can have a material impact on the employer.”

He said trustees should bring administration experts into discussions where changes are being made to schemes. However, he added trustees should not be given sole responsibility.

“There’s a duty on the trustees to oversee good governance, there’s also a duty on administrators to make sure their voice is heard,” he said.

Despite this, Richard Butcher, managing director at independent trustee company PTL, said schemes often give the appropriate amount of time to the different areas depending on their requirements.

“The allegation is the investments get a lot more time,” he said. “Actually it can be justified… Investments are by far the most complex part of the trustee’s job. They need to be able to understand the decisions they are making, and because of that they need a lot more training on investment issues.”

However, he added investment was often thought of as more glamorous than other aspects of scheme governance, and it could be easier for trustees to understand the quantum of risks associated with investments compared with administration, so they could spend disproportionate amounts of time on it.

“They should set the amount of time they need to spend on each area. It’s up to them to decide how much time they need,” he said.