Local government schemes are using benchmarking and reduced paper trails to save administrative costs. Ian Smith looks at what the private sector can learn from the public sector
The Greater Manchester Pension Fund (GMPF) has saved £200,000 solely by reducing monthly pensioner payslips to just twice a year in most cases.
Such policies mean this year its annual administrative charge per member is less than £14, compared with an average of more than £22 across local government schemes.
The statistics are provided annually by local government funds to the Chartered Institute for Public Finance and Accounting (CIPFA), which analyses the benchmark.
Compared to funds that send monthly payslips, our policy saves us around £200,000 a year
Benchmarking administrative spend allows employers to compare their costs against similar organisations.
Reduced administration charges means a greater proportion of a member's retirement saving will be ringfenced for their deferred income.
Greater cooperation among funds has led to a series of cost-saving initiatives in the public sector, as funds group together to reduce costs for members.
And CIPFA has now said it is open to the idea of private sector employers joining the group in some capacity, to further drive down schemes' spend.
How to reduce admin costs
Ged Dale, head of pensions administration at the GMPF, said the fund’s savings came from economies of scale, but also its administrative policies.
The GMPF sends every pensioner a payslip for April, which is also the P60, and then in May, after the pensions increase.
But it only sends further payslips when there is a variation of £5 or more in the net monthly payment.
He said: “Compared to funds that send monthly payslips, our policy saves us around £200,000 a year in postage alone, plus a lot of labour and machine time. Our policy is also greener.”
The size of the fund also allows for specialisation, he added, meaning each GMPF worker can look after more members of the scheme.
Each GMPF worker deals with 3,663 scheme members, compared with an average of 3,484.
Scheme savings: Three areas
Joint procurement: Joining together with another scheme to procure services at a lower cost;
Framework agreements: Making agreements with providers open to further schemes;
Shared services: Combining personnel and decision-making with another scheme.
He added: “We put a lot of effort into recruiting and promoting the right people and then training and developing them – this pays handsome dividends.”
The fund will continue to improve its relationship with employers, which is crucial to the service the member receives.
Compare and contrast
The CIPFA Benchmarking Club compared the administrative costs of 59 local government schemes this year.
Each scheme has to provide detailed information on their costs, workload, membership details and staff movements.
Nigel Keogh, technical manager for pensions at CIPFA, said the benchmarking gives these funds a key comparator for their costs.
It allows them to question how they can drive down their own costs by following their more successful counterparts.
He said: "It is a sense check. The ability to compare that with someone else in a similar situation has to be useful."
Keogh added he would be open to private sector companies joining the benchmarking club, if there was momentum behind the move, and employers saw it as valuable.
He said: "There may be gains for both there, being able to compare the private to the public sector."
Coming together to save
There are three levels where local government schemes are coming together to control costs:
Joint procurement: where schemes jointly procure services of, for example, a custodian bank, to reduce the charge for each.
Framework agreements: agreeing a framework contract with a third-party provider, which is open to further funds to join. This also benefits from economies of scale.
Shared services: where two or more local government funds combine their administration teams to achieve more drastic savings. Cambridgeshire and Northamptonshire have targeted 20% savings to their pensions administration.
Dale said he would see framework agreements as the most advantageous option to the GMPF.
He added: “We are also looking at the potential benefits of more joint working with other funds.”
