Maladministration is in no one’s best interest – and it costs more – argues Lesley Carline, PASA
The Pensions Administration Standards Association (PASA) is the new kid on the block for ensuring that members receive the best service and pension provision from their scheme and the administrator. With the best will in the world, can we currently say with confidence that those who look after schemes and those who monitor them have a good base to start from and can we as PASA truly make a difference?
The most recent annual review by the Pensions Advisory Service (TPAS) has shown that the issue of maladministration has not gone away. While the overall number of complaints in 2010/11 fell by 22%, maladministration related issues remained at the 2009/10 level of 48% of all complaints.
Almost half of complaints made to TPAS were about maladministration, much more than the second reason for grievance which was in relation to applications for early retirement and ill health retirement, at only 16%. It must be stressed, however, that such headline figures can be misleading, as they cannot take account of general member dissatisfaction and lack of understanding and we know first hand that there is plenty of good practice already out there. Of course, complaints do not mean the administrator got it wrong, but they tend to mean that something is not right, whether it be an error, misunderstanding or a delay or simply the way an issue was handled. If pension scheme members are unhappy enough to complain to TPAS, we need to pay attention.
For example, there is an argument that third party administrators (TPAs) have perhaps rested on their laurels, thinking they are better at administration than their counterparts in life companies looking after contract based arrangements. Of complaints received by PASA about contract based schemes, 63% related to poor administration, while over 40% of complaints about occupational schemes concerned poor administration. This may seem like a significant difference, but if you consider that non-administration complaints about contract based schemes are not handled by TPAS, but by the Financial Ombudsman Service, the numbers are broadly comparable. Perhaps those of us looking after trust based schemes are not as great as we think we are.
Traditionally, meeting service level agreements (SLAs) has been enough to satisfy trustees that administrators are doing all that is needed to meet their needs and consequently those of their members. SLAs have always formed the cornerstone of what the industry considered to be the only real measure of performance, but how does turning around a quotation figure or transfer out value in five days really help the member if it is wrong? We could even argue that the rush to get things out of the door in the agreed timescale has resulted in corners being cut. Behaviours flow from the measures in place. Thankfully, things are changing and a few administrators now focus on measures that make a difference to the member.
PASA’s aim is to change the traditional focus from just meeting SLAs to the actual quality of the administration being provided and to make sure that unacceptable levels of complaints being received begin to decline.
Hopefully, the Pensions Regulator’s (TPR) initiatives on administration and data standards will go some way to improving this, too. We would hope that increases in the level of data accuracy would mean that there will be a reduction in the number of mistakes with regard to estimates, communications and quotes for transfers in or out. Having the regulations in place to make sure that the data that administrators hold is current and correct should, in theory, limit the number of mistakes.
On the other hand, the data on record is only one part of the problem, with some TPAs simply employing “button pushers” to carry out tasks, producing quote after quote and undertaking mundane tasks with little or no variety. Shifting the focus and engaging staff with the knowledge to understand the tasks they are carrying out will go a long way to reducing much of the member dissatisfaction present.
While we would all agree that automation is a fundamental part of an administration service, it still needs to be underpinned by staff who really understand and can check the accuracy of system generated answers. Training is therefore invaluable so that staff actually know what they are looking out for and, more importantly, the implications for members and the fund if something produced is incorrect.
This training should not stop at administration staff; the knowledge needs to be shared with those with overall responsibility of the scheme, too, namely the trustees. If trustees do not understand what the administrator is doing, what the members need and the effects of maladministration, progress will be limited in terms of reducing the number of complaints.
How much do trustees truly know about administration? In a recent survey carried out by RPMI, less than half felt they completely understand the administration function – not a great start! We must all take responsibility for making sure that the trustees we engage with, whether from an administration, adviser, manager or other professional point of view, have the understanding they need of current issues, future changes and everyday business as usual.
Once we have trustees that can truly understand what great administration means and the consequences of poor administration, we could be on to a winner, but we need to start now.
As we all know, auto-enrolment is looming. The pressure is on employers, payroll teams and HR to make sure they get it right for their members. The sheer increase in numbers of people joining pension schemes will probably mean that complaints about administration will rise, but we need to do our best to minimise them.
The increase in membership of defined contribution (DC) schemes will potentially affect the type of complaints received. The problems around timeliness and getting the member’s contributions into the right funds at the right time cannot be underestimated. The last TPAS review found a reduction in the number of complaints regarding delays in dealing with member contributions, but this could be due to the rising market and members actually benefiting from delays in investment/disinvestment. With regards to the contract based market, complaints about investment administration were running at 13%.
Best practice in DC is being considered by TPR and effective administration is one of the six key areas of focus believed to enable good member outcomes, which can only be welcomed.
We have long talked about the need for administrators to work together with the employers and payroll teams to meet the challenges of auto-enrolment to ensure a seamless transition for new and existing members alike. Time will tell if this advice has been heeded or those concerned have continued to hope that some miracle will occur which results in all the necessary tasks being carried out by some wondrous pensions fairy.
So, what does all this mean? Several challenges continue to face the world of pensions, especially those that will directly impact on the member. This is why it is so important that we, as pensions professionals, do all we can in the background to ensure we limit the number of complaints. After all, it costs about ten times as much to correct a mistake than it does to get it right first time. Maladministration is in no one’s interests.
There are many examples of good administration out there, but improving on this requires investment in training not only of administrators but of trustees and supporting functions. Administrators need to be more than button pushers; they need to understand the implications of the figures they are calculating. Occupational pension scheme administrators are no different from those in the life companies and we definitely are not superior. PASA has a role to play in promoting good administration; it can define what it looks like and how to go about it.
Author: Lesley CarlineLesley Carline is a partner at Kim Gubler Consulting.