British Coal members raise Capita admin concerns

The outsourcing company is currently embroiled in a crisis over its financial performance. Capita issued a profit warning last week and suspended its dividend. Shares in the company dropped by more than 45 per cent.

The Work and Pensions Committee has subsequently launched an inquiry into the company and will investigate any potential consequences for its defined benefit scheme. Its pension deficit grew to £381m on an IAS19 basis in 2017 from £86m in 2011.

I’m sure Capita don’t get everything right, but in our case I think they have started off well

Kate Barker, BCSSS

Capita, which has many pension fund clients, has come under scrutiny in the past over the quality of its pensions administration. Recent cases include complaints from members over its handling of teacher and GP pensions.

Despite criticism from some, Capita continues to pick up business. Last year, it beat three rival bids to a seven-and-a-half year contract with the Royal Mail Statutory Pension Scheme that started on September 30 2017.

The deal, worth £31m, sees the troubled company administer the sixth largest public pension sector scheme in the UK, comprising about 402,000 deferred members and pensioners.

The British Coal staff scheme appointed Capita on August 1 2017 following the expiration of its five-year contract with Aon Hewitt at the close of 2016.

The £11.4bn Mineworkers’ Pension Scheme outsourced its administration to Capita in December 2017.

Member cites 'teething troubles'

Speaking at the staff scheme’s AGM on October 5 2017, the chairman of the committee of management for the British Coal scheme, Dame Kate Barker, revealed the scheme has “received communications from a few members concerned about Capita’s ability to administer the scheme”.

She said Capita’s size, and the “high-profile” nature of its work, has meant “the wider group has sometimes been subject to press comment and external criticism”.

During the meeting’s open forum session, a member named Don Brown shared his own experience of difficulties with the administration provider, during his tenure as a board member of another company that had switched to Capita.

“We did have some teething troubles on payment of salaries and pensions and people not getting paid,” he said.

Barker responded that every pensioner had received their pension on time, barring a number of overseas pensioners who had to wait for normal bank checks.

She said: “I’m sure Capita don’t get everything right, but in our case I think they have started off well – this has been due to a lot of hard work.”

Barker added: “Staying with Aon [Hewitt], particularly with the move of more of the scheme’s administration overseas, could have resulted in a deteriorated service.”

Barker told members the trustees had held concerns over Aon’s long-term commitment to the pension administration sector.

These worries were somewhat justified when the big three firm announced its decision to pull out of its ‘administration only’ offering in order to focus on its core consulting business.

A spokesperson from Aon said the company was “sorry that we could not retain the administration work with the British Coal scheme. Aon had enjoyed a long and successful relationship with the trustees of the BCSSS, during which we provided high levels of service to its members”.

Capita switch to deliver lower costs

The BCSSS board was also looking to lower administration costs, although the up-front costs of switching meant administration expenses rose by “just under £1m” last year, according to Jon Heathfield, scheme secretary.

He attributed this rise to new rules that require schemes that have been contracted out of the state pension to reconcile their records against those of HM Revenue & Customs.

Barker disclosed that the proposal received by Capita during its tendering exercise “included significantly lower costs than Aon’s”, whose proposed charges were “significantly higher than [those of] other firms”.

Get the union involved

Members weren’t alone in their worries over the scheme’s decision to appoint Capita. The National Union of Mineworkers, which represents BCSSS and MPS members, communicated its worries to the scheme.

NUM general secretary Chris Kitchen said: “We have got concerns about their choice to go with Capita.” These included the company being “in quite a few pies”, according to Kitchen.

“We’re hoping that the trustees have done due diligence, and that cost savings have not been the primary motive to go to Capita,” he said.

While respecting the need for the scheme to keep costs down, Kitchen argued that “there is a limit that you can cut to, where it does start to impact adversely on the service that members can expect”.

There were no discussions between the NUM and the trustee board prior to the decision to choose Capita to administer the scheme.

While the union would not conventionally have formal involvement in the process, Kitchen said: “You would normally expect that they would inform us informally.”

Kitchen said he had been in touch with Andy Gibbons, head of trustee services for the MPS scheme, following the news over Capita’s financial performance.

He had sought assurances that “should Capita become the next Carillion, they have got robust systems in place to provide a back-up so that the members’ pension payments and administration queries will still be serviced”.

Capita chief executive Jonathan Lewis said last week: “The contrast with Carillion couldn’t be starker.” Outsourcing company Carillion was liquidated last month. He also described Capita as “far too complex” and having “underinvested in infrastructure and over-relied on acquisitions for growth”.

A statement on the BCSSS website reads: “The trustees can provide assurance to our members that their BCSSS pensions are completely secure.”

A Capita spokesperson told Pensions Expert the company had nothing to add to its financial statement made last month, and said: “It’s business as usual for Capita.”

Changing of the guard

The BCSSS administration team is made up of 12 personnel based in Capita Employee Benefits’ Sheffield office, half of whom moved over from Aon Hewitt.

It is not uncommon for staff to follow a contract from one employer to another, under Transfer of Undertakings (Protection of Employment) Regulations 1981.

TUPE regulations seek to preserve workers’ terms and conditions when a business or undertaking, or part of one, is moved to a new employer.

Mark Adamson, director at consultancy JLT, said these transitions can be problematic for some employees. “During the transition process, when the old provider is continuing to try and carry out the business-as-usual work… they can be distracted by the fact that they don’t know what their future holds,” he said.

He emphasised the importance of the old and new provider working together throughout this period.

As part of the drive to lower costs, monthly paper payslips were stopped when Capita took over. Members now receive three payslips a year, but can still access monthly payslips online.

In its winter newsletter, the scheme said it had “taken the opportunity to streamline and future-proof the information included in payslips”.

Margaret Snowdon, chair of the Pensions Administration Standards Association, supported these adjustments. “Paper payslips are expensive and often just filed away, but members and trustees are sometimes reluctant to move away [from paper payslips], partly because it is seen as ‘reduced service’ and therefore negative,” she said.

“It is common to make the change to payslips when changing administrator because it’s only one change among others, but can deepen the suspicion that the change of provider is all about reducing the level of service,” she added.