Hounslow drops Capita and heads for West Yorks

Mukesh Malhotra, chair of Hounslow’s pension fund panel, confirmed the fund’s decision to enter a “full partnership model” with West Yorkshire, starting August 2018.

The West Yorkshire Pension Fund has administered the Lincolnshire Pension Fund under the same arrangement since 2015.

Two representatives from the Lincolnshire pension fund sit on West Yorkshire’s ‘collaboration board’, according to Yunus Gajra, business development manager at West Yorkshire.

The art of those contracts really comes down to the homogeneous nature of the scheme structures

Daniel Taylor, Trafalgar House

Hounslow will be permitted up to two members on the board. West Yorkshire’s senior management team, which is comprised of a director and four senior managers, also have places on the board.

West Yorkshire is not the only local authority scheme providing administration to other pension funds.

In November 2016, the London Borough of Hillingdon Pension Fund began a similar arrangement with Surrey County Council. The fund had previously outsourced its administration to Capita.

The news comes as another blow to Capita. In recent months, the outsourcer has faced widespread criticism from the British Medical Association, teachers and former mineworkers for the quality of its pensions administration service.

Last year, Barnet Council was forced to implement a recovery plan after coming under scrutiny from the Pensions Regulator over its administrative woes. Barnet outsourced its pensions administration to Capita in 2013.

Capita’s service threatened bad publicity

Hounslow had held a contract with Capita to provide pensions administration since February 2009. The council notified Capita in autumn 2017 that it would not be renewing its contract.

The council reviewed a number of options for pensions administration, and Capita was considered for a new agreement, according to Malhotra. But “there have been some concerns” about the company’s service, he said.

At a meeting of the council’s pension fund board in January 2017, the board drew attention to targets not being met for processing pension requests. It also observed delays concerning the transfer of pensions to “other funds”, according to committee meeting minutes.

The board voiced the view that problems with processing requests “could be very detrimental and lead to adverse publicity”.

It noted that “the examples given were consistent with the problems in performance previously experienced with Capita”.

Administration transition is underway

Otherwise known as a shared service partnership, the responsibility for the new contract lies jointly with West Yorkshire and Hounslow, according to Gajra.

West Yorkshire will charge Hounslow for its administration service on a shared cost per member basis.

“The cost to Hounslow is the actual cost of administration, so any savings, any cost is shared by Hounslow with us and our other shared service partners,” Gajra said.

The transition between Capita and West Yorkshire is now underway. Hounslow’s new administrator has received the first “of at least two data cuts”, he disclosed.

A data cut captures the raw data that will be taken from Capita’s Hartlink administration system and uploaded onto West Yorkshire’s Universal Pensions Management system.

These are important because of the difference in administrative systems in place at each provider, Gajra said.

A Capita spokesperson said: “We have an extensive range of industry standard and best practice accreditations that support our operations.”

The spokesperson added: “We are working closely with the London Borough of Hounslow to ensure a smooth transition of the pensions administration service to a new provider.”

The move will take time

The move from Capita to West Yorkshire could be fairly arduous, based on the experiences of those who have undertaken a similar move.

In Hillingdon’s latest annual report, pensions committee chair Philip Corthorne commented: “The transfer from Capita was a major project and it will take some time for the new arrangements to bed in and to reduce the backlog of work they transferred. However, early performance has been encouraging.”

The switch may well be worth their time. Minutes from a Hillingdon pension committee meeting in 2015 indicate “very poor levels of performance” in relation to the timely estimate of retirement benefits and the administration of condolence letters.

Capita’s failure to meet “100 per cent performance against agreed tasks” led to Hillingdon securing a 10 per cent rebate on its fees to the outsourcer. The total rebate paid to the fund by Capita to the end of 2014 came to £11,217.

This could be the best model for LGPS

The shared partnership model being adopted by the Local Government Pension Scheme adds a third option to a debate that has traditionally split administration between in-house and outsourcing arrangements.

It has been lauded by experts. Daniel Taylor, director at administration company Trafalgar House, described the set-up as a “no-brainer” for the public sector.

“The art of those contracts really comes down to the homogeneous nature of the scheme structures,” he said. “It just makes perfect economic [and] operational sense.”

“Where this market struggles is in scale, quality and sustainability,” he added. “You need a critical mass to make any of these contracts really work, and that’s why people struggle with that outsourcing/in-house debate.”

Taylor did not rule out the possibility of larger private sector schemes embracing this model. He highlighted the current state of the outsourcing market and pointed to BT's decision last year to bring its administration in-house.

“Choice is limited and so options at that side of the market are pretty contracted. Where do trustees go if they want value for money, they want stability, they want control, for very large pension funds?” he asked.

I think even a lot of Conservatives now recognise how badly Capita are performing

Arjun Mittra, Labour Party

Fergus Clarke, board member at the Pensions Administration Standards Association, recognised a recent drive across the LGPS to increase efficiencies through economies of scale.

“There’s commercial sense in that, and then one hopes [that] would reflect back eventually into the local taxpayer,” he said.

However, Clarke pointed out that there are greater savings to be made elsewhere for LGPS funds. “The impact of savings in administration cost within LGPS is probably about a third of the impact of the savings of investment costs,” he said.

Pasa operates an accreditation framework that recognises organisations that demonstrate high standards of administrative performance.

Clarke said Capita does not currently hold accreditation, but is considering applying for it.

A Capita Employee Solutions spokesperson said: “We continually review further potential accreditation as appropriate.”

How will Capita fare at the polls?

The beleaguered outsourcer saw its share price plunge by 47 per cent in January following a profit warning. A shifting political landscape might pose another challenge to Capita.

England is set to hold local elections on May 3. The Financial Times reported Lord Robert Hayward, a political analyst, as saying: “I would be surprised if the Tories did not have an all-time low of councillors in London.”

Capita may watch the outcome of Barnet’s election with nervous interest. A Conservative-led Barnet Council awarded Capita two 10-year contracts in 2013.

The Conservative party currently holds a wafer-thin majority at Barnet Council, with 32 councillors. The Labour party has 30 councillors. The Liberal Democrats have one.

Richard Cornelius, leader of Barnet Council, defended the TPA contract. “They provide an adequate service at a low price and we’ve saved a lot of money by doing it,” he said.

“There have been problems with some services,” he admitted, adding that “they need to be put right”.

A Barnet Council spokesperson said: “Discussions are ongoing with the regulator to ensure that agreed improvements are being achieved.”

A spokesperson for Capita said: “We have a robust plan in place to enhance the pension service we provide Barnet Council and, working closely with them, are delivering against agreed targets.”

John Burgess, branch secretary at trade union Unison’s Barnet wing, said the union is currently operating surgeries for residents with concerns about their pensions. He said: “Ten people a week come to the office.”

He speculated that a Labour council would want to bring services back in-house.

Labour councillor Arjun Mittra, who sits on the council’s pensions, audit, and performance and contract management committees, refused to rule out exploring the return of the fund’s administration in-house.

“This has always got to be governed by the best level of service we can get," he said. "We certainly aren’t getting that from Capita at the moment."

Mittra said the contract’s unpopularity with residents would be a key issue in the election.

“I think even a lot of Conservatives now recognise how badly Capita are performing,” he added.