An administration strategy should look at the long and short-term objectives of the scheme, and without a strategy, schemes are in danger of never achieving any data improvement goals, says Trafalgar House’s Garry Wake.
Action points
Agree on a long-term strategy for your scheme
Assess the alignment of your strategy to your administrator’s operational structure
Agree on a set of objectives, actions and success criteria to measure your goals against
The preoccupation for most trustee boards is how to tackle today’s administration challenges; few ever consider the direction of travel for the service or what its ultimate outcomes or aims are.
Just like your investments, if you neglect your administration strategy then you will experience unexpected shocks that will derail or delay your long-term objectives
When asked about their administration strategy, many will quote the outdated adage of “paying the right pension to the right person at the right time”. This is a fundamental requirement of the service, not a strategy.
An administration strategy should look at both the short and long-term objectives of a scheme and should be used to shape its structure, focus and developmental path.
Look to the future
Not all pension schemes, or pension scheme members, need the same type of service, nor do they all have the same ultimate aims. Just like any service, the ‘steady state’ should not exist, nor should any scheme assume that this is what they need.
When shaping an administration strategy, you should start with the end. It is important to understand and define what the shape of service provision should look like in the next 10 years.
For some schemes, this objective will be obvious, such as buyout. For others, it may be more opaque and require some honest debate about the future of the scheme.
Data is always a preoccupation of administration and it is also a good example of how a strategy can shape and define what happens to it. Data improvement is a vague, nebulous term. It is context that gives it relevance and purpose, a strategy that gives it structure.
If a scheme’s strategy is to achieve buyout then the approach to data improvement is one that starts with a full structural review of scheme documentation and rules, leading to a benefit assurance programme.
If a scheme’s strategy is to drive engagement online, then data improvement can be a laser-guided exercise that focuses exclusively on the barriers to self-service.
Without a strategy, schemes are in danger of never achieving any data improvement goals and it will feel as if you are constantly pushing water uphill.
The most effective strategies include a long-term goal, supported by a range of smaller supporting initiatives. For example:
Cost reduction: Reducing long-term operational costs could include the development and delivery of electronic communications and improved levels of automation.
Liability management: Delivery of a range of liability reduction programmes would require improved and wider liability-focused data, boosting skilled project resources and specialist communication packages.
Volume processing: Effectively handling increased or sustained high volumes of enquiries or cases could require taking a functional approach to service delivery, creating first and second line support functions or additional self-service channels.
Consider the alignment of your administrator
Misalignment between an administrator’s operational structure and the long-term requirements of schemes often occurs as the demands of maturing schemes evolve and as business plans of providers change.
Taking stock and critically analysing whether your administrator is structurally aligned to your scheme through their operational structure, resourcing and development plans is essential.
One key consideration is the growing divide between technology-driven automated efficiency and cost reduction solutions in defined contribution administration, compared with the reliance on human technical competencies in the defined benefit space.
Once your strategy is agreed, set targets, milestones and a range of success criteria. While your administrator should be left to develop and recommend their own solutions to meeting your strategic objectives, you should expect concrete actions and updates.
Just like your investments, if you neglect your administration strategy then you will experience unexpected shocks that will derail or delay your long-term objectives.
Garry Wake is managing director at administration company Trafalgar House
