A growing number of private sector schemes are outsourcing their pensions administration, according to an Aon Hewitt survey.
The 2013 Benefits Administration Survey revealed that 75% of those who responded are outsourcing their pensions administration compared to 69% last year.
With defined benefit (DB) schemes closing at a "rapid" pace, Aon Hewitt said that the decline in active DB members is one factor which has triggered an increase in outsourcing administrative tasks, while in-house teams now focus more on current employees within defined contribution (DC) schemes.
Other factors for an increase in outsourcing have been driven by cost, technology, and legislative change.
Colin Hamilton, Aon Hewitt commercial director for benefits administration, said: "While the survey highlights that the main driver behind the decision to outsource continues to be cost, our experience tells us that the decision to outsource is rarely based on cost alone. There are a number of other factors that are driving this rising demand.
"Scheme administrators are facing an increasing workload driven by legislative changes, such as auto-enrolment, and meeting member expectations around service quality, engagement and online functionality, while companies try to control costs and reduce risks. For many in-house administration teams, outsourcing is providing a valuable solution to managing these challenges."
Aon Hewitt said that an increase in de-risking projects has also contributed to more schemes to turn to outsourcing specialists as the projects can be "resource hungry" and require a large amount of administrative activity.
Legislation and in particular auto-enrolment was revealed as a key factor in increasing the appeal of outsourcing pensions administration.
Despite 42% of respondents not knowing how many employees will opt-out and what burden it will place on the administration and communications teams, a third expect opt-out rates to be 10% or less.
Hamilton said: "This low level will not mean that the administrative work will decrease. On the contrary, larger organisations in particular must ensure that they have appropriate resources in place to cope with greater demand for employee support services, both at the staging date and beyond."
There were 361 respondents to Aon Hewitt's survey, with a combined £97bn of pension assets and over two million employees.
Hamilton said: "Around 25% of respondents – often some of the largest – still retain in-house administration and satisfaction among them is still high.
"It remains to be seen whether additional legislative change will act as a catalyst for further outsourcing, as increased strain is placed on finite resources. Even those committed to in-house provision may seek external support with managing activity peaks, large projects or finding efficiencies."
He said that schemes should still review their systems, processes and data, whether they decide to outsource or remain in-house so that schemes remain up-to-date.
First published 12.06.2013
monique_simpson@wilmington.co.uk
