Manual interventions in automatic processes mean there is still the potential for defined contribution administration to go wrong. Taking a step back could help trustees and administrators spot mistakes before they are too difficult to unpick, says the Pensions Management Institute's Lesley Carline.
Whether single trust, master trust or contract-based arrangements, member administration in theory could be carried out with barely a human touch.
One administrator confirmed that despite offering online switching as standard, 60 per cent of switches are still notified via paper or email forms
Contributions could be uploaded by the employer and validated against the member record before being accepted. New joiners, leavers or amendments to personal details could all be uploaded in the same way.
Clean, fresh, validated data kicking off the periodic contribution cycle, spitting out investment instructions that could automatically be sent via straight-through processing gateways. This would result in an electronic notification coming back to initiate the unit allocation process and reconciliation of member holdings, scheme holdings and investment manager holdings.
Manual processes are error-prone
With this automation, how can things possibly go wrong? The answer is that many of the processes described above still involve manual intervention.
One administrator confirmed that despite offering online switching as standard, 60 per cent of switches are still notified via paper or email forms. Other providers still process data by having employers email in spreadsheets, and rely on the administrator to validate them
Some investment managers are still not part of the STP group using the ISO 20000 standards, relying on fax or extranets for receiving instructions and sending back contract notes.
In any area where manual intervention occurs there is a potential for errors. Unfortunately, these errors are often not found for years, meaning members may have an accumulated loss. This leads to a tortuous unpicking and rectifying project.
Reconciliation is a headache
Members may have switched funds, lifestyle rebalancing will have occurred, and in some cases members will have retired or even died.
The Pensions Regulator has been pretty clear that it expects members who have been affected to be returned to the position they would be in if the error had not occurred.
A member may have lost in one fund and gained in another, but schemes cannot net one off against the other. Any loss may be quite insignificant but that is not the point.
It often costs more to carry out the correction project than it does to actually buy any additional units. There is also the potential for a loss of trust in the scheme.
Long-term view helps identify errors
Spotting errors is the most difficult part of the job for trustees and administrators alike. A recent administrator turned trustee pointed out that administrators concentrate on the here and now when it comes to reporting.
It is all very well focusing on achieving a service-level agreement in one particular quarter, but perhaps looking over a longer period would allow administrators to spot discrepancies, sudden spikes in investment holdings or falls in SLAs that should be investigated further.
Attention should be paid to any issues raised by auditors over administrator processes and, of course, a periodic review of the pinch points along the administration process would be a wise move – better to prevent than have to correct an error.
Lesley Carline is president of the Pensions Management Institute
