Pension schemes exist with the sole purpose of providing members with the right pension at the right time. The administration provider is key to fulfilling this purpose and ensuring a positive member experience, writes Dalriada’s Adrian Kennett.

Action points

  • Focus on your requirements – to what extent does your existing contract match what you need?

  • Discuss those requirements with your provider – can they deliver, and do you trust them?

  • If you need to tender, keep it focused and know your market

Pensions administration has traditionally been undervalued. Most schemes are waking up to the reality that it is not something that should be skimped on. 

However, to get good value, trustees should fully understand what they are paying for and whether this meets the needs of their scheme.

The pensions administration market is subject to constant change. Adjustments to systems, legislation and regulation have all impacted on the market in recent years.

Ultimately, the relationship with the TPA is based on trust

Trustees’ requirements have changed and providers have evolved accordingly, with some providers withdrawing from the market entirely. 

With no statutory standard for the process of switching providers, it is common to find a fear of change resulting in bloated and out-of-date contractual arrangements. 

Determine your requirements

To establish whether you are getting the best deal from your TPA, you must determine your requirements.

The need for timely, efficient and effective pensions administration is a given. It is important to consider what reporting you need, and what online member access would be of benefit.

How complex is your benefit structure? What modelling tools would benefit your members? And how effective are the TPA’s communications to members?  

Once you have established your requirements, you should review your existing contract. Does it reflect those requirements? Is your existing TPA delivering to the wording of that contract? 

Contracts are legal agreements for the delivery of service. Failure to deliver to contractual obligations should be raised directly with the client relationship manager at the TPA. It may be simply that your contract is out-of-date, in which case a revision of terms might be necessary.

However, the problems may run deeper than contractual anomalies. Ultimately, the relationship with the TPA is based on trust. If you have lost trust in your TPA then you may decide to move.  Given the cost and risk of switching, it is not a decision to be taken lightly, but equally it is not something to fear.

Your requirements will help you start to narrow down the field of appropriate candidates to provide administration services.

You do not want a provider whose core business is providing services to schemes with over 100,000 members if your scheme has 1,000 members. You are unlikely to get their focus or their best staff.

Knowledge of the market is key

Familiarity with the marketplace is important. If you are not aware of the strengths of the different providers, then take recommendations from others but do not simply follow the first opinion you hear – take a considered view. 

Next, you should think about whether you will get a better service if you bundle some of the services that you are seeking together. For example, would the administration team be strengthened by the presence of the scheme actuary in the same company or office? 

With your requirements forming the basis of a specification, invite a shortlist to tender to that specification. How deeply trust has been eroded determines whether you include your existing provider in the process. Do not ever invite anyone who you would not be convinced could provide the service to tender.

The key to the effective tender process is how accurately you have drafted your specification. The scope must be clearly defined. And when responses are received, score them clearly against that scope. 

Marketing teams are always looking to ‘develop’ business – to sell a low core fee safe in the knowledge that if they move slightly outside of that core, then far higher time-cost rates will result.

At the selection meeting, ignore the glossy brochures, industry awards and all added-extras not included in the fixed fee.

Get the people in the room who will be engaged in your appointment, and ask yourself whether you can work with them. The meeting should be about those people demonstrating their capabilities and systems. That is what you are buying.

Adrian Kennett is a director at Dalriada Trustees

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