Defined contribution administration governance is an often overlooked area, but anyone involved in DC should understand the five key elements of administration and how they impact their role, writes PASA’s Gary Evans.
Administration governance has always been a focus for the Pensions Administration Standards Association, it’s the foundation of the PASA standards and accreditation process.
Yet with DC becoming the way most people pay into a pension, there’s still confusion over where accountability for DC administration governance lies.
If we’re to have meaningful governance around DC administration, then we need common standards for administrators, employers and trustees to follow
The emergence of mastertrusts and wider coverage of contract-based auto-enrolment schemes has distorted the traditional relationship between sponsoring employer and trustees.
Five pillars of admin
We have developed the DC Administration Governance Guide for anyone involved in a DC pension, to help them understand what they’re responsible for – and what they need to do about it.
The first step was to identify the key elements DC administration – data and recordkeeping, decumulation, administration controls, management information and, increasingly, transitions between administrators or systems. But in governance terms, what needs to be done?
Data and recordkeeping: People need to be clear on how frequently member data should be updated, who has control and manages it, and what processes should be in place to keep data secure.
Decumulation: This could seen as the ‘business end’ of DC administration, focusing on the type of benefit a member actually gets. Ultimately this depends on what’s available from the trustee or employer, but there should be measurements to demonstrate if it works well or poorly. Members need to understand their options and they can’t do that without accurate and clear information.
Administration controls: Key controls and processes should be clearly documented for the employer and trustees. Reconciliations must be multilayered and any errors reported. If there are errors, there should be an agreed basis of rectification that leaves the member no worse off.
Management information: This has developed considerably over the past five years, but there is still a need to be clearer on what MI is appropriate and useful for each scheme and how to obtain it. Schemes should start with the fundamental question of whether members are getting good outcomes from their pensions and then think about how they can achieve this.
Transitions: As services transfer between administrators or providers, there should be standards to govern the process. The focus here should once again be on member outcomes, ie what needs to happen to ensure the move works in the member’s best interest
If we’re to have meaningful governance around DC administration, then we need common standards for administrators, employers and trustees to follow.
PASA’s aim is to begin setting those standards and encourage debate in the industry on how we can drive improvement.
Gary Evans is a board director at the Pensions and Administration Standards Association
