Admin transitions: Avoid the sting in the tail

Whether led by performance issues, scheme consolidation or corporate activity, the decision to assess typically leads to a market review, followed by a formal tender process and site visits to potential new suppliers and presentations, before a final decision is made.

During a review, the focus is often on the quality of service the new administrator will provide, how they will go about setting up the scheme on their systems and the costs for doing so.

Schemes run the risk of being stung with exit charges that can vary significantly, with some providers charging as much as 50 per cent of the annual fee

However, what is regularly overlooked at the planning and budgeting stage are the charges the existing administrator will make for handing the services over to a new provider.

Unless schemes have contractually fixed fees and the associated deliverables, they run the risk of being stung with exit charges that can vary significantly, with some providers charging as much as 50 per cent of the annual fee to deliver the project.

Get the administrator to commit to a fixed fee

All new administration agreements should include a specific service schedule covering discontinuance services and their associated fees – but it is unlikely that any administration agreement older than five years will have this feature.

Schemes without this feature in their service agreement should ask for terms to be updated while they are in a strong negotiating position, even if they are happy with the current service and there is no appetite to change.

Transition processes often vary – based on the size, type and complexity of the scheme and the standard of member data – but most good quality administration transitions follow the same path, with many having identical handover requirements.

Since most administration transitions have the same list of deliverables, schemes can broadly establish their hand-off requirements now, covering 90 per cent of the process and getting their administrator to commit to a fixed fee.

While overall exit costs will depend on the size and complexity of the pension scheme being transitioned, much of the work, such as producing data extracts, is the same for all schemes regardless of whether it has 50,000 records or 15.

What should be on the checklist

The key stages and requirements of an administration transition typically include:

• Completion of data-gathering questionnaire

• Provision of all scheme documentation and factors

• Provision of test systems data, decodes and control totals

• Attendance at project meetings or conference calls during the transition

• Provision of live systems data

• Queries relating to data, practices and inconsistencies

• Transfer of pensioner payroll and submission of final period RTI

• Handover of work in progress and redirection of new enquiries

• Closure of existing trustee bank account and transfer of balances

• Handover of fund accounts, including year-to-date figures

The Pensions Administration Standards Association has released a code of conduct on administration provider transfers, which is a useful reference document for schemes having exit fee discussions with their existing administration providers.

The guidance, aimed at all pension administrators, acknowledges that commercial terms for exit services are unlikely to be in place universally. The guidance lays out a framework which aims to enhance the transfer of services between providers, give clarity to all participants in relation to their responsibilities and mitigate the potential for delays.

This is a voluntary code, however, which relies on the existence of goodwill – something a provider who is losing a client may not have. Agreeing contractual fixed fees before the next administration review should therefore be a priority for pension schemes. 

Joe Anderson is a business development manager at administration company Trafalgar House