Aon Hewitt has announced the results of its 2013 Benefits Administration Survey, which highlights the growing number of private sector schemes which are outsourcing their pensions administration - from 69% of respondents in 2012 up to 75% in 2013.
Colin Hamilton, Commercial Director for Benefits Administration at Aon Hewitt, 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.”
The 2013 Benefits Administration Survey attracted 361 respondents with a combined £97 billion of pension assets and over two million employees. Respondents to the survey included pension managers, trustees, and professionals from HR, benefits, compensation, reward and other specialties.
Aon Hewitt’s survey also provides further evidence that defined benefit (DB) pension schemes are closing at a rapid pace ? nearly half of the schemes covered by this survey are closed to new members and to future accrual. The decline in active members of DB schemes has triggered an increase in outsourcing administrative tasks that were historically performed by an in-house team – which now seem to be increasingly focused on current employees in DC schemes.
In addition, a widespread increase in de-risking projects, which can be resource hungry and require a considerable amount of administrative activity such as data cleansing, has contributed to more schemes turning to outsourcing specialists in order to help them reach the endgame of scheme closure when scheduled.
Colin Hamilton added:
“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.
“Whether schemes decide to outsource or remain in-house, this should not stop them reviewing systems, processes and data to ensure that every chance is taken to introduce efficiencies and to improve member satisfaction. Reviewing any of these areas - either in-house or with the help of a specialist third party - can reveal opportunities and ensure schemes can keep pace with change and future requirements.”
Auto-enrolment
The survey also found that legislation and especially auto-enrolment, is a key factor in increasing the appeal of outsourcing pensions administration. It also appears that a high level of uncertainty around auto-enrolment remains, with 42% of respondents not knowing how many employees will opt-out and what burden this might place on their administration and communications teams.
Colin Hamilton said:
“Despite the uncertainty around opt-out rates, a third of respondents expect them to be 10% or less. However, this low level will not mean that the administrative work will decrease. On the contrary, larger organisations in particular must ensure that they have the appropriate resources in place to cope with greater demand for employee support services, both at the staging date and beyond.”
Further findings of Aon Hewitt’s Benefits Administration Survey are:
• Half of respondents receive other services as well as administration from their outsourced provider. All of the smaller schemes surveyed outsource multiple services to a single provider, while only 14% of the largest do so;
• Levels of satisfaction with their pensions administration service are high with 79% of respondents rating it as “excellent” or “good”;
• Electronic communications and online member self-servicing are the most popular options for improving administration quality and efficiency;
• 36% of the respondents stated that they would continue with their existing pensions administrator to assist them with auto-enrolment administration and 31% said they would do the work in-house.
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