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Pension administration – the courage to ask for more

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Working in UK pension administration is a bit like being stuck in a traffic jam. Everyone seems to be struggling to make progress, but one lane always seems to be moving faster...

The ones that are moving faster are generally the new-age DC schemes that are unencumbered by legacy ‘stuff’ and who have had an opportunity to think about their service model from the ground up. 

For the rest, and DB schemes in particular, life just isn’t moving fast enough. Members expect more – because they have experiences from other service providers and they know what good looks like. The problem is one of investment. 

UK pension schemes generally invest less in pension administration than overseas comparators - we spend less and do less. We’ve allowed pension administration to be commoditised to an unnecessary extent and have cut, outsourced and chased down the market. We fail to articulate the value of administration and too often we don’t even get the basic record keeping right. We have too many suppliers working within a contracting market comprising largely sub-scale schemes, so margins are squeezed and investment is impossible. 

Here’s my quickfire, six-point plan to shake things up.

1. Rethink the basics

Let’s start by scrapping the label “pension administration”. Nobody wants to invest in ‘administration’. Let’s talk about the “customer experience”. The change in emphasis is overdue and it’s easier to get budget to improve the customer experience.

2. Change up the governance

Wouldn’t it be great to see trustees selected because their skills really do align with the ‘business’ needs, i.e., to reflect a scheme’s strategic plan and fundamental risks? Could you imagine the head of customer experience for say, Amazon, sitting on the board with particular responsibility for member service? Getting the right thinking and leadership at both board and executive level is fundamental to effect real change.

3. Understand and relate to the audience

We think we know our members, but do we really? Of course we should take steps to understand how members want to engage with the scheme, but often members don’t know what they want until they see it. Behavioural science and data analytics are shaping how the world’s top pension funds relate to their members. Some schemes are starting to use data to segment membership in a way that we haven’t thought about before, to analyse how members respond to messages and channels and then to refine those messages to maximise the impact.

4. Learn from others

We learn most when we’re outside of our comfort zone. Rather than looking at other UK pension funds for inspiration, wouldn’t it be a good idea to expand our horizons? Pension plans all over the world face similar challenges and yet tackle them in very different ways. Most are accommodating and willing to share. A plane ticket is a small investment. At the same time, let’s think laterally about what we can learn from other industries. Pension schemes have captive markets, are long-term in nature, have low levels of customer engagement and are highly complex. That describes lots of other industries, all of which present an opportunity for us to learn from.

5. Determine a vision and a strategy to achieve it

We are too focused on short term obstacles. Leadership means looking beyond GMP problems and articulating a longer-term vision of customer service based on a detailed understanding of what members really want and need. The strategy should articulate how to achieve the vision. Big decisions about outsourcing and IT are part of the strategy.

6. Measure what matters

What gets measured gets managed, so go back to basics and get creative about what can and should be measured. Large schemes around the world are starting to measure engagement, understanding, outcomes and the customer experience. Timeliness measures have a place – but it’s a small one. Too much emphasis on traditional KPIs has driven the wrong behaviours in the market for too long.

It’s been good to see some of the UK’s biggest pension schemes prepared to rip up the rule book and think about creating a customer centric service model recently. In some instances that has also meant thinking again about what they need to spend to deliver their vision and having the courage to ask for more. Let’s hope there’s a trickle-down effect.

John Simmonds, Principal at CEM Benchmarking