Specialist administration firm Trafalgar House look at the key aspects of the administrator’s role now the initial dust has settled. The article will look at systems and processes, member communication across different channels and developing a public-facing admin team with the skills to give members the information to get them through to the daylight at the other end.
The introduction of freedom and choice in pensions in April 2015 created many challenges which the pensions industry has had to overcome. When combined with auto-enrolment, pensions are in the public eye more than ever before.
Freedom and choice and greater member engagement in pensions is undoubtedly a good thing. However, the amount of choices a member has to make and the amount of information they now receive can easily become overwhelming.
More than ever, pension scheme administrators have a key role to play in ensuring that members are aware of their options, have a clear understanding of what steps they need to take to draw their benefits and, critically, where they can go for guidance and advice should they need it.
The role of the administrator has never been easy. We have always needed to communicate complex information to an audience that, more often than not, can be overwhelmed and get lost in jargon and complexity. We are responsible for turning scheme rules and data into accurate information for members, who use this to make choices which have a considerable impact on the rest of their lives as they move into retirement. We’re also the first port of call for members who want to ask questions about their retirement options.
Freedom and choice introduced more options, new jargon and additional complexity for Trustees and providers to deal with, all of which had to be implemented in a very short period of time.
Our role as administrators was to work with clients and Trustees to determine their response to the new freedoms. With many of the changes being elective, we saw the complete range of decisions; from no change through to allowing members to utilise as many of the freedoms as possible, across DB, DC and hybrid arrangements.
The effort involved in making the necessary changes to systems, processes and member communications was significant. Each had to be designed to cover all possible eventualities whilst being adaptable enough to account for the range of different choices that clients made.
As well as the changes themselves, there has been an upsurge in the number of requests for information - particularly in transfer value requests. A contributing factor could well be that members are now more inclined to involve an Independent Financial Adviser (IFA) who, almost by default, will request a cash equivalent transfer value as part of their information gathering. We have also seen members across a much broader age range become re-engaged with their benefits, including pensioners who have been retired for a number of years. The current level and range of requests for transfer value quotations looks set to continue, although we have seen little evidence that the number of transfers actually proceeding is on the increase.
Now, more than eight months down the track and with the changes well and truly embedded, we now know what members expect from their pension scheme administrators in the post-freedom and choice world.
In a society where you can instantly obtain a bank balance, transact online, track your order and more, member expectations of service providers have never been greater. However, the pensions industry still has some way to go to match up to the experience members receive from elsewhere. But what should their expectations be?
Administration has, in many ways, been dragged kicking and screaming into the 21st Century. From a not-so-distant past of paper records and manual calculations, we have seen the introduction of computerised records and calculation automation, culminating in The Pensions Regulator’s record keeping guidance being the absolute minimum standard of data that Trustees should be maintaining.
All of this has helped to make administration processing more efficient, resulting in improved response times and enabling online self-service leading to, what should be, a better member experience. However, much of the industry is still using Service Level Agreements (SLAs) as the main measure of performance, which, as we all should know by now, do not reflect the true experience of the member.
In addition, many pension schemes are not providing a way for their members to obtain information online. A more balanced approach to service provision and measurement, including online services, end-to-end measurement and member feedback, is a much better way of delivering a service that is arguably now more important to a member than ever before.
Members also rely on their administrators to assist them if they have any questions. This is where a very clear line needs to be drawn between what an administrator can and can’t be expected to do for a member. The role of the administrator is to provide information, not advice.
However, members will often call the administration team after receiving their options seeking advice, often on a wider basis than just the benefits payable from the scheme we administer. They will often have benefits elsewhere, including the State Pension, and will want to know how it all fits together. This is where administrators have to ensure that their written, online and verbal communications are correct, clear and consistent and can signpost members to Pension Wise and other resources providing guidance and advice.
Written communications linked to automated processing have all been subjected to a thorough overhaul as a result of freedom and choice in pensions, but that is only part of the story.
We communicate with members by letter, email, online and by telephone. Each of these methods requires a slightly different approach, but an underlying consistency. Regardless of type, they are all underpinned by the same thing – people.
What cannot be ignored is the requirement for administration staff to fully understand the changes that have been made. This applies at several different levels. The first is the overall pensions framework, post-freedom and choice. Then, they need to understand how these changes have been applied to each of the schemes that they administer based on the choices made by each client. Finally, there also needs to be a full appreciation of how each member is affected by the changes.
For example, a member with purely defined benefit entitlements may not be affected, unless they want to transfer to a defined contribution arrangement, when they will need to seek financial advice. However, a member with Additional Voluntary Contributions (AVCs) or DC benefits will likely have several avenues open to them which all need careful explanation.
This leads on to the continued use of jargon in relation to pensions. An UFPLS is one of the options potentially now available to members with DC benefits. On its own it’s meaningless. Even spelling the acronym out in full – Uncrystallised Funds Pension Lump Sum – does not make it any clearer to the person on the street what it actually is.
It is therefore essential that member-facing administrators have the necessary knowledge and expertise to provide support to members, and to be able to explain these matters in simple terms.
Outlook and conclusion
The pensions industry has become used to significant change and this shows no signs of abating. The one constant is that there is a member at the end of all this change who will be looking for help and guidance to understand their options.
As pensions administrators, we are responsible for explaining complex information in an easily understandable and non-threatening way, whether this is in writing or verbally.
Delivering good outcomes for members whilst ensuring that they receive the best possible experience can only be achieved through making the best of use of the available technology and ensuring that the people delivering the service are knowledgeable, well-trained and comfortable with the ever-changing pensions landscape.