Welcome to the 17^th Annual Pension Scheme Administration Survey

This year's Survey has been completed by 414 public and private sector schemes, with a combined pension fund asset value of over £297 billion, and answering more questions than ever before, this year's Survey is our biggest yet. The results give a valuable insight into the business of pension administration.

The credit crunch has left a lasting impact, and although things in the world financial markets are starting to look up, it could be some time before we start to see a true recovery. As such, keeping costs down continues to be an important consideration for many schemes. With considerable cost savings to be had from outsourcing, particularly for larger schemes, the Survey shows a growing trend in the willingness of pension schemes to consider this option for the first time. With the possibility of auto-enrolment looming in the not too distant future, the decision to outsource is again being reviewed by in-house teams.

Auto-enrolment and NEST are not the only challenges facing many pension schemes. Over the years a clear and steady shift to defined contribution schemes from defined benefit schemes has been obvious. This trend looks set to continue and many schemes acknowledge that the administration involved in handling defined contribution schemes can often be much more complex.

In previous Surveys we have seen that in most service areas, defined benefit scheme administration performs better against targets than defined contribution. However, this year, the Survey also shows an increase in both the quality of service and the perception of the quality of service received through outsourcing.

As with previous Surveys, we have included a statistical appendix, which contains all of the data used to compile the Survey, so that you can see the facts and figures for yourself. Finally, I would like to thank all those schemes and individuals who took the time to complete the Survey. Your response has also supported the Capita Macmillan Cancer Support Kilimanjaro Climb which took place earlier this year. With your help Capita Hartshead made a donation of £2,000. And of course our thanks also go to Underline Marketing and Research for carrying out the Survey on our behalf.

I hope that you will find the results interesting and informative.

Mike Addenbrooke

Managing Director, Capita Hartshead May 2010

Survey highlights...

Some key highlights of this 17th Annual Pension Scheme Administration Survey Report are as follows:

Administration inflation: for most schemes, administration costs have increased by between 5 to 7 per cent over the past year. However, most schemes continue to benefit in cost terms from third-party administration.

Swing to outsourcing in tough economic conditions: a third of in-house administered pension schemes responding to the Survey have never considered using third-party administration. However, of these, two-thirds (up 35 points from a year ago) say they are likely to consider a change to third-party administration in the future.

Over half of defined contribution schemes have reviewed their existing third-party arrangements in the last three years alone, with a quarter changing administrator following a review, indicating a high level of competition in the third-party administration market.

Pension trends in the year ahead: many defined benefit schemes anticipate further one-off contributions and increases in regular employer contributions, as well as further scheme closures to new entrants and future accrual.

Amongst defined contribution schemes, half the schemes plan to introduce new investment funds and options. Many schemes of both types expect to introduce salary sacrifice arrangements in the year ahead.

Auto-enrolment and NEST: given the move to auto-enrolment from 2012, some 51 per cent of schemes (up 17 points from a year ago) now say they are likely to revise current scheme benefits to hold down costs.

22 per cent of defined contribution schemes say they may opt some employees into NEST rather than auto-enrol these employees into their company scheme, and 10 per cent may close their existing arrangements entirely in favour of NEST.

Challenge for trustees: the ranking of scheme risks faced by schemes and the mitigating factors to address them is different between defined benefit and defined contribution schemes, highlighting the difficult and different challenges for trustees who are often responsible for managing both types of schemes with limited resources and time.

The Pension Quality Mark: there has been an increase in the awareness and understanding of the Pension Quality Mark, showing that administrators are taking into account broader quality considerations.

The Survey supports this showing that good service standards and quality target deliveries have improved – 31% of services were rated as having delivered a service considered to be above expectations.