Some very large pension schemes are now considering outsourcing administration to a third party administrator (TPA) where, five years ago, it would have been relatively uncommon.

The spate of DB scheme closures has prompted this general shift in thinking. However it is normally a specific issue that prompts a review, which often leads to a decision to outsource. Such issues typically include:

• A corporate decision, such as liability de-risking; closure of the pension team office; a change in core business activity policy, or some global HR alignment.

• Cessation of support for the administration platform, and the significant cost of a new system.

• Discovery of systematic failures, resulting in increased trustee and corporate risk.

• Failure of teams to evolve in line with the employer culture, or the changing status of the pension scheme.

• Loss of knowledgeable and highly skilled staff through retirements or resignation.

It is easy for factors like these to creep up on trustees, forcing them to make a reactive (and sometimes hasty) decision. While each situation will require a specific solution, one factor can improve the outcome of a decision on future strategy, eg to outsource or to continue in-house. Pre-emptive and careful planning allows the trustees to consider the broadest number of options and gives them sufficient time to proceed in the best direction.

In a long term game, it pays to have planned several moves in advance.

Rob Bridgewater

A full article on this subject by Rob Bridgewater, ‘In-house or Outsourced? Weighing up the Benefits', can be found in Tolley's June 2010 newsletter, available to all subscribers of the Tolley's Pensions Administration Service or download it here.