The South Yorkshire Pensions Authority has witnessed an improvement in its service delivery, following the launch of a new pensions administration strategy which allows it to fine tardy participating employers.
The multi-employer scheme has encountered difficulties over the timely receipt of employer annual contribution returns. The fund previously struggled to meet its own delivery deadline for member benefit statements after changing its software provider.
The authority’s updated administration strategy, launched in April 2016, codifies its right to levy fines on employers that deliver their returns beyond its deadline.
According to the SYPA’s latest annual report, 94 per cent of employers complied with its May 31 2016 deadline, up from 52 per cent in 2015.
SYPA interim fund director Steve Barrett said that the late delivery of contribution returns had “historically been a great problem to administering authorities, which led to knock-on problems in terms of late and poor data being submitted".
Most often, employers are not conscious of the effect that it has on the pensions administration side
Daniel Taylor, Trafalgar House
This chain reaction had made the authority’s ability to meet other statutory deadlines “almost impossible”, according to Barrett.
The authority now imposes a £250 fine on employers who fail to meet the initial deadline, followed by further fines of £100 per week until the data has been submitted.
Employers unaware of knock-on effects
Daniel Taylor, client director at administration specialists Trafalgar House, supported the authority’s decision to impose financial penalties on employers that fail to respect its deadline.
“Most often, employers are not conscious of the effect that it has on the pensions administration side,” he said.“What we do see very often actually within all service agreements across the pensions administration sector, is that timelines and deadlines are set, but there is no penalty.”
“There are no service credits, there is no payback, there is no type of fee penalties for hitting these standards, and that is common across the pensions administration industry,” he added.
The submission of employer contribution returns is necessary for the delivery of the scheme’s annual pension forecasts. The authority is comprised of over 50,000 members linked to 350 employers.
Employer contribution returns are also essential to a multi-employer scheme’s actuarial valuation.
David Davison, director at consultancy Spence & Partners, said: “There’s an incentive for organisations to get that information to get the valuation produced earlier.”
“What you tend to find with funds is that because that information hasn’t been available earlier, the production of the valuation is delayed, which doesn’t give organisations much time to actually either review the information or [act] on the information if they think it’s wrong, or to negotiate with the fund around the contributions,” he added.
With schemes looking to produce figures in December and January for implementation in April and May, Davison said that delayed returns can “cause problems for everyone”.
Barry McKay, head of LGPS actuarial at Hymans Robertson, said that a scheme would either have to delay its timescale and therefore an employer’s ability to budget for its contribution rate, or the actuary would have to rerun the valuation once it held all the data.
The SYPA’s 94 per cent rate of timely contribution returns would in theory necessitate a rerun of the valuation. In practice, McKay added, “it was unlikely that they would do so because it would cost the fund more money".
Monthly reconciliation can improve cash flows
The scheme will switch to reconciling its employer contribution data on a monthly basis in April 2018.
Davison said this change will improve the scheme’s ability to accurately record the values of its cash flows and its assets.
He said: “If you’re reconciling [contribution data] annually then you’re not reconciling the money coming in at the same time as the money is being invested for each organisation, so it’s difficult to actually produce accurate cash flows of the money coming in.”
South Yorkshire admin issues highlight LGPS challenges
A number of local authority schemes have faced administration challenges and missed deadlines after implementing new software, as the provider struggled with capacity troubles.
McKay said schemes can determine more quickly either whether an employer is not paying contributions or is not paying at a certified rate.
“If they’re not paying the correct contributions, that can go on for a whole year if you’re doing it annually. If you’re doing monthly you can spot within a month or two whether they’re doing something wrong.”
