How do you get comfortable with that provider taking good care of the members of a scheme you have been looking after?
Insurers will place a high importance on looking after members, not least because they know that trustees are increasingly placing member experience high up on their priority list. In some cases, for example if a scheme is in surplus, member experience will be more important as a selection criterion than the premium being charged.
However, with bulk annuity transactions at record levels, insurers are facing constraints in their capacity, so it’s more important than ever that trustees take care to understand how their members will be looked after.
What should trustees be looking for?
Trustees will have their own views of what a good member experience looks like, but they might want to consider the following:
Administration team:
- Which administrator(s) does the Insurer use? Do they have an in-house team or is it outsourced to one or more third parties?
- Is the administration team based in the UK? Are there any plans to move the team outside the UK?
- Is the administration team ‘ring fenced’, i.e. team resource is not shared with other clients?
Service standards:
- What are the standard SLAs they have in place for responding to queries or completing member quotations, and how frequently are those missed?
- How does the insurer monitor performance (both speed and quality) of the administrator?
- What are the volumes of complaints, the severity of those complaints, and how quickly are those complaints resolved?
- What methods can members use to contact the administration team? How quickly is the phone picked up?
Other items:
- Is there an online platform members can use? If so, what functionality does it have? Can members use it to request quotations or estimates, for example?
- How does the insurer ensure that vulnerable customers are treated fairly?
- Is the insurer part of the Institute of Customer Standards or Pensions Administration Standards Association?
Even with careful due diligence, trustees should be aware that insurers can and do change administrators or may change from an in-sourced to an out-sourced model or vice versa. Even where standards of administration are currently high, there is no guarantee that will continue into the future.
The future of DB pensions administration
Administration is a critical part of running a pension scheme, and high performing administration teams are going to be increasingly in demand. It seems likely, however, that DB pension administration skills will slowly be lost over time as fewer people enter a market that is declining, and existing administrators retire.
This begs the question of what will happen to DB pension administration in the future. Will standards drop? Perhaps AI or chatbots will play a part in providing this service in the future?
Should minimum standards of administration be introduced by the Pensions Regulator, for example, to ensure that quality does not fall?
Conclusion
As more and more schemes approach a bulk annuity transaction, trustees should be mindful of the way in which their members will be looked after in the future, and we recommend that trustees complete due diligence on the administration capability of an insurer as part of selecting a bulk annuity provider.
Trustees should also keep a watchful eye on the administration market, both as part of the administration of their portfolio of pension schemes, and with an eye to how the bulk annuity market will develop in the future.
Andrea Mendham, Partner - K3 Advisory
