1 - All schemes: administration issues

This year's Survey is based on responses from both in-house and third-party administered schemes, with the former making up just short of four out of ten schemes in the sample (see Table 8). Half of the respondents provide both in-house and third-party administered schemes. For example, they may run a defined benefit scheme in-house and a defined contribution one on a third-party basis.

In the last year, increases in scheme administration costs varied across scheme sizes. Increases range from 2 per cent to 8 per cent depending largely on scheme size. Generally, increases were highest in smaller schemes, where overhead cost increases due to increased regulatory requirements over the last year are spread over fewer members. Most schemes fall into bands where increases in costs have ranged between 5 to 7 per cent per annum (see Tables 9 and 10).

For schemes with more than 2,000 members, third-party administration continues to provide cost savings (£3 to £6 per member per annum) in comparison with in-house arrangements, but generally the cost gap between third-party and in-house administered schemes has narrowed in recent years.

Put into cash terms, a scheme with 6,000 members on average costs over £30,000 per annum more to run in-house, and a scheme with 30,000 members costs around £180,000 more.

Costs do, however, vary across a very broad spectrum. Schemes with more than 50,000 members typically report per member costs of between £10 and £30, whereas for schemes with fewer than 1,000 members, costs can often exceed £200 per head.

Table 8: All schemes – pension scheme administration sample

Table 10: All schemes – Cost difference between in-house and third-party administered schemes

Table 11: PPF Levy – Costs

Very few schemes separately identify the cost of administering their defined contribution schemes from that of their defined benefit schemes. Just under half of defined contribution schemes are sections of the 'old' defined benefit scheme, where costs may not be separately identified. Also, a high percentage of new defined contribution arrangements are contract-based plans run by insurers, where administrative costs may be difficult to pin down or may be unavailable.

Without doubt, whilst investment in new technologies and computer software over recent years has had a beneficial impact on processing times and costs and in the features available to members, increases in regulatory costs have more than overtaken these savings when allied with extra funding costs for defined benefit schemes arising from lower investment returns, increased compliance costs and changes in longevity assumptions.

Overall, 'reliability of service' remains the most important reason given for continuing the current form of scheme administration (ranked first by both in-house and third-party administered schemes), with 'specialist staff' as their second most important reason (see Table 12).

Table 12: All schemes – Main reasons for continuing current administration arrangement

'Established working relationships' and 'improved control of administration' were generally ranked more highly this year by third-party administered schemes (ranked fourth and seventh respectively by in-house administered schemes), with, on the other hand, 'faster response times' ranked third by in-house schemes as against ninth by third-party schemes.

'Lower cost' remains a low-level factor in the decision to continue either in-house or third-party administration.

We asked all schemes what are or would be the most important factors if they were choosing a third-party administrator, whether they have actually done so or not.

Overall, 'experience of the organisation' was again ranked first by both third-party and in-house administered schemes as the most important factor when choosing a third-party administrator.

Beyond this, there is a coming together in the factors viewed as the most important in the selection process. In-house and third-party administered schemes (and defined benefit and defined contribution schemes) see 'specialist technical support' as the next most important factor, with the 'reputation of the company' and 'financial strength' both figuring in the top four of all lists (see Table 13).

Table 13: All schemes – When choosing a third-party administration company what do you see as the most important factors?

Last year, a 'robust governance framework' moved up to be ranked the third most important factor by both in-house and third-party administered schemes, and second overall. This year, perhaps surprisingly, robust governance has moved down the priority list of all schemes to a mid-table position.

Similarly, 'cost' was again judged only a mid-table factor in the decision-making process.

Since the series began, more third-party administered schemes (now 96 per cent) and inhouse administered schemes (now 93 per cent) have spelt out their turnaround times for key administrative tasks (see Tables 14 and 15). A decade ago, fewer than eight out of ten schemes covered by the Survey set these down. These days, close to half of the schemes review these targets continually or over an annual cycle.

Table 14: All schemes – Is your administration delivered to target turnaround times for certain tasks?

If 'yes', when were these last reviewed?

Table 15: All schemes – Sixteen year comparison of number of in-house schemes and third-party schemes with target turnaround times for certain tasks

Over nine out of ten schemes also operate to set service standards that are incorporated into agreements with administrators and/ or trustees (up 6 points on a year ago). Two-thirds say their administration service includes the measurement of end-to-end processing times, with this (as with service agreements generally) more prevalent amongst third-party administered and defined benefit schemes.

Whilst still fewer in-house schemes measure service standards, in-house administered schemes continue to report that service levels exceed expectations more frequently than do those where third-party administration applies. Despite this, 31% of third-party administrators are shown as raising the bar against these higher expectations – table 17 shows a variety of service standards and quality target deliveries for third-party administrators.

In the majority of key service areas, there has been a considerable increase in service targets being exceeded by both in-house and third-party administered schemes, with service failures most pronounced across all schemes in the area of 'reduced management time' devoted to pensions, as was the case last year. Again, this inability to reduce management time spent on pensions is likely to reflect the ongoing and additional regulatory and financial challenges workplace pensions present to businesses.

Across most service areas, defined benefit scheme administration performed better against targets than administration in respect of defined contribution schemes. We comment elsewhere that this may reflect the historic preoccupation of trustees with defined benefit arrangements and with some defined contribution schemes where the administration is more complex.

On the plus side, as with last year, 97 per cent of schemes achieved or exceeded their target for service in terms of the overall member experience, with, encouragingly, more moving into the 'exceeded' box compared to last year.

That said, administrators cannot rest on their laurels. The Survey found an expectation from a third of respondents that service standards should continue to make advances on current levels.

Table 16: All schemes - Are service standards formalised into any agreement with the administrators and/or trustees?

Does your administration include the measurement of end-to-end processing times (i.e. Total elapsed time from beginning to end of process)?

Table 17: All schemes – Has your administration service met targets expected in terms of those below:

Compared to a year ago, have your expectations of the administration service changed?

A majority of schemes continue to use paperbased documents to communicate pension information to members, supplemented by web-based communications, where shortened annual reports, newsletters, summary funding statements and scheme booklets were the most popular documents in this medium (see Table 18).

Table 18: All schemes – Have you or your third-party administrator produced any of the following documents for circulation to members?

Scheme communications remain predominantly the preserve of in-house teams, but with third-party communications specialists increasingly playing a part alongside independent communications and benefits consultants (see Table 19). The Survey found that third-party administered schemes and defined contribution schemes are both less likely to have scheme communications run in-house.

Table 19: All schemes - Who provides your scheme communication?

How would you describe the trustees approach to allocating budget for communication?

Overall, the financial resources devoted to scheme communication remain modest, with six out of ten schemes in the sample spending £20,000 or less per annum (see Table 20), somewhat down on a year ago.

Table 20: All schemes - What is your approximate annual spend on scheme communication?

Do your trustees have a dedicated sub-committee with the assigned responsibility for communication?

Of these, under half plan their spend for the year ahead, with the balance favouring 'ad hoc' spend ahead of a 'project by project' basis. Reductions in budgets are likely to have reflected the widespread poor economic and financial conditions over the last 12 months.

Three-quarters of trustee boards do not have a dedicated sub-committee with the responsibility for communications.

Reflecting the growing trend in web communication, 73 per cent of schemes (up 12 points on a year ago) now have a website, with over half offering interactivity features and a third either comment or feedback options (see Table 21).

Table 21: Does your scheme have a website for members to access?

If 'yes' who provides it?

Does the site contain areas that are devoted to:

Trustees are more likely to provide the websites for in-house and defined benefit schemes, with unsurprisingly third-party administrators more likely to provide a site for third-party administered schemes.

Just over one in four schemes provide web-enabled access to members' individual records, with a third of those who 'do not' remaining unsure as to whether they will ever do so (see Table 22). In contrast, over half the schemes offering web access say this has improved the overall member experience. That said, it is perhaps disappointing that on average just 22 per cent of members actively use the web access facility, albeit this is up 7 points on a year ago.

Table 22: All schemes - Do you or your third-party administrator provide members with web-enabled access to their individual scheme records?

If 'yes', is it:

What level of usage is there?

If 'no', when will you provide web-enabled access?

Where web-enabled access is provided to members, there has again been an increase in the proportion of schemes offering access to all members rather than just current employees, from 31 per cent three years ago to 71 per cent now.

Half the schemes say web access is reducing the number of queries received, although under a third believe web-enabled access is providing value for money, 5 points down on the situation a year ago.

The survey again examined the use of newer communication media, such as CD/DVD and podcasts. These are still not widely used, but with a slightly higher expectation that their use will be extended in the year ahead (see Table 23).

Table 23: All schemes - Which of the following new media are you using for scheme communication?

Reversing the situation of a year ago, twothirds of schemes said that their current level of communication with members is 'good' or 'excellent' as opposed to just one-third a year ago (see Table 24).

Why there has been such a change in assessments is difficult to gauge, but maybe the stabilisation in the economic environment (and concerns about the impact of volatility on pensions of all types) has eased members and trustees concerns.

However, somewhat confusingly, as we report above, whilst fewer schemes appear to have spent higher sums on pension communication in the past year, more schemes say they have increased spending as opposed to reducing it!

Table 24: All schemes - Do you think your scheme's current level of communication with members is:

How has your level of investment in member communication changed over the last 12 months?

Do you plan to review the quality of your communication with members over the next 12 months?