Strong words, Henry.
Pensions administration is the toughest gig in the industry – bar none.
Let’s ensure we criticise “the industry” not “the individuals”. They are faced with a Herculean task.
Clients and consultancies should invest more in these #pensions heroes.
— Mike Harrison (@HigherEdActuary) September 8, 2021
Yesterday’s blog on how pension administration is lagging improvements in the servicing of other areas of financial services, has been taken as an “ad hominem” attack on pension administrators. It isn’t.
Regular readers know that I share Mike Harrison’s admiration for pension administrators. But they are generally not their own masters. Typically they work within actuarial practices but rarely do administrators make it to senior roles within the practice. Administration is a utility and features low in the value proposition. Consequently in vestment in administrative systems is less than it should be.
There are exceptions, there are standalone administrative units where third party administration is the core product and these tend to be more innovative. But they are benchmarked against a peer group that is generally falling behind best practice.
What is best practice?
Best practice is defined by the beneficiary of the service offered, not by the contribution the service makes to the practice’s bottom line.
The standards of service provided by workplace pension providers is detailed in IGC,GAA and master trust reports through net promoter scores and accurate monitoring of service levels.
The high standards we see among many workplace pension and SIPP providers compare with the low standards experienced from many traditional administration teams. But this is not because those teams aren’t trying to be heroes, it is because they are do not know what good looks like.
This is because they have become isolated from the developments going on elsewhere in financial services. I took as an example, Pension Bee. Not everything Pension Bee is perfect, some of their processes are clunky as has been pointed out to me by a friend who is struggling with the tax treatment of their income drawdown (they are yet to get permission from HMRC to use the client’s actual tax codes).
My friend sent me the correspondence for comment. It was professional, timely and constructive – it recognized the problem and promised remedy once agreement had been reached with HMRC. This to me is an example of a young company that is learning to be better.
There are many other pension services that compete with Pension Bee and workplace pensions for the customer’s favor. I learned yesterday of Collegia.
I have no idea of how well Collegia works but it is backed by Alliance Bernstein and Mobius Life and the people who run it are both graduates of Oxford Said business school. It has the pedigree to deliver a great user experience.
Will Collegia or Pension Bee or any other pension scheme that brings a new user experience appear in the surveys of pension administration. It is unlikely.
There is virtually no cross-over between these new players and most established pension administrators (pace HS Admin). But when it comes to the user experience, the service standards of the new digitally based SIPPs and workplace pensions are far ahead.
This may seem an unfair comparison, since so much of what traditional administrators do, relates to legacy issues (both DB and DC). I do see a place for legacy pension administration but it needs to be ring-fenced and quarantined, as it is in danger of stopping progress of mainstream pensions providing data to pension dashboards and offering excellent customer experience via the kind of application pictured above.
While I agree with Mike Harrison that consultancies need to invest more in providing a better service, I do not think it is up to the clients to fund this investment. Clients are getting poor value for money due to the failure of consultancies to adopt the new technologies. They should not be paying twice to put right these business failures.
Right now, the administration standards of the large actuarial consultancy admin units are evidenced in the appalling delivery standards I talked about in yesterday’s blog.
PensionBee found that 42% of savers who have previously tried to change pension providers feel that the process was so difficult that they would not attempt another transfer.
Many savers also reported issues accessing support from their providers during the transfer process, with more than half (51%) citing some kind of difficulty, from long waiting times (22%) to giving up after multiple failed attempts (9%).
In addition, 50% of savers who attempted to transfer a defined contribution pension were still required to complete paperwork, with more than a quarter (27%) having to complete multiple sets of forms. This is despite electronic transfers being widely recognised as much faster, more efficient and secure for consumers than traditional paper-based methods.
Slow, difficult transfers have been an issue for many years. In 2016 the Financial Conduct Authority (FCA) asked the pensions industry to speed up transfers for the benefit of savers and a number of working groups, like TRIG and STAR, were formed. However, recent data published by Origo Options, the pension transfer service, showed that five years after this process began transfer times are in fact slowing down.
PensionBee’s own data reveals a series of slow transfer offenders, with Mercer at an average of 46 days to transfer and Now Pensions (44 days) and Capita (40 days) not far behind.
Speak to any stakeholder dealing with these named firms and they will confirm that service standards are generally way below where they should be.
Benchmarking against best practice
So I guess my appeal is to those who provide the benchmarking surveys for pension administration to cast their net wider and start comparing what is being achieved among the new breed of workplace pension and SIPP providers.
The Pensions Regulator should also take note. The pension dashboard’s data availability point should not be set by those who lag best practice but by those who set it. The non-availability of data from organizations that have not invested in new technology and have not become data-ready, should not mean that those who have- stand behind them in the queue.
Strong words indeed
I have worked in actuarial practices and seen how pensions administration is treated. There is an absence of opportunity for career progression in the administration teams. They are starved of investment, they are not encouraged to innovate, their ideas are not treated as thought leadership. In short, pension administration is the back office.
But the reverse is true among the new providers where the service of the Pension Bee Keepers is the primary selling point of the product. Pension Bee keep their data in the cloud (its primary database is Salesforce). Pension Bee is dashboard ready and it offers APIs to anyone it deems fit to integrate to it. It is only a matter of time before it transfers core processes to smart contracts on a distributive ledger.
Where it is weak, it accepts its shortcomings but it does so with an eagerness to find a solution. These are lessons that need to be learned by the providers of some institutional administration services.
Above all, we need administration to embrace change, to look beyond the immediate competition and ask what today’s customer expects by way of service. Meeting that expectation should be the aspiration of our administration teams.