The following article first appeared in Professional Pensions on 13 August 2019.
Service credits are a useful feature of administration contracts, tying performance with fee levels, but they are rarely used. Daniel Taylor argues why more contracts should include them.
Another administration report tells you targets have been missed, member complaints have risen and your attempts to intervene, support and apply pressure have failed - what's your next move? You can use your nuclear option and start the process of changing administrator, but that's going to take months. All the while, your members and reputation suffer.
In desperation, you dust off your long-forgotten service agreement looking for the levers that could breathe life back into your ailing service. A set of clauses that compel your administrator to put things right, to invest more time and resources in getting things back on track. But sadly, this is often the final blow and it's at this point you realise your agreement lacks the instruments that could put your service on the road to recovery.
In other outsourcing markets, one contractual feature that insures against persistent service failures has only made limited inroads into pensions outsourcing. If you work in the technology sector, then service credits are the de facto standard when it comes to outsourcing. It is a feature that goes hand-in-hand with the concept of service levels and one that gives a commercial imperative for delivery and quality.