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More change, not less

02 November 2017

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Jenny Monger discusses the need for change as the real risk for schemes is accepting current administration standards and not taking that leap.

There have been recent calls from the pensions administration market to be wary and cautious of service provider transitions as they have the potential to result in data loss.

Whilst it is right to highlight some of the problems encountered with this type of service transition, there is a much greater risk that we continue to scare trustees into not undertaking these vitally important market transactions.

One major reason standards in the pensions administration market have not dramatically improved over the long-term, is because the market does not act like any other rational market.

A mixture of inertia, fear and an acceptance of generally low standards means that trustees are too reluctant to change provider, which has driven down standards. The free market, when acting rationally, will inevitably and progressively mean standards improve when buyers move their business from under-performing suppliers, to those that innovate and deliver quality at a lower price.

The shopping habits of millions of people has not changed because the top three supermarkets colluded to agree on marginal improvements – they improved because Amazon invented a wholly better and more convenient way to shop.

Buyers moved their money and the top supermarket monopoly was broken, for the good of consumers. Innovation and improvements occur because businesses want to attract and retain customers.

If it's impossible to do this because trustees are continually told of the perils or problems of changing administrators, then how will this market ever really improve?

What the pensions administration market needs more than anything else, is for it to behave like a rational market.

Service transitions inevitably uncover issues with past service provision, or seek to highlight the unscrupulous behaviour of the incumbent provider – neither of which tend to come as much surprise to the transferring scheme trustees, as a mixture of these reasons tends to be the motivator for the initial decision to change.

Alongside highlighting the risks and issues we also need to clearly articulate the benefits, such as improved member service, thorough data integrity and quality assurance, as well as often bringing online new communication and digital services.

A truth often overlooked is that scheme administration transitions are simply not as complex as they once were five or ten years ago. Project management, data assurance, systems, programming and communications have evolved exponentially.

Yes, transitions involve risk, it would be naive and short-sighted not to acknowledge that, but the real risk for schemes is not taking that leap and continuing to accept poor standards and slow incremental change.

The biggest threat trustees face in terms of a transition, is generally the transferring party. Staying with them and hoping for the best is not going to improve things though and it certainly isn't going to see standards across the market improve.

Trustees should take steps now to protect themselves against the incompetence or uncooperativeness of their current administration through an exit project.

This can be achieved by setting and agreeing a schedule of exit services and for guarantees or penalties to be put in place that provide suitable motivation for a full, timely and comprehensive exit.

The only way to really improve this market is to promote, protect and encourage change.

We can do this by highlighting the success stories and improvements that transitions can bring and by encouraging trustees to take a closer look at the tools and processes that we now use that have dramatically improved the quality and robustness of these processes.

Jenny Monger FPMI,Business Design Manager, Trafalgar House