Are pension schemes shopping around enough for the best deals on admin software?
Taking the bill
With high inflation and a fragile economy, it’s never been more important for administration software to deliver value for money.
Introduction
Digital member self service capability could help steer members towards better outcomes by improving their engagement, but apps can’t land without a solid foundation of member data, and the quality of many schemes’ data is hindering rather than helping digital adoption. Elsewhere, fraudsters continue to find new ways to deprive members of what little funds they have. Given that only around half of the members in our earlier study informed their pension provider every time they changed address, there are plenty of gaps for fraudsters to slip in through, and only so long before a member’s annual benefit statement gets posted into the wrong hands. Open goals like this could help explain why the total cost of pension fraud in the UK was estimated to stand at an astonishing £14.6 billion in 2020. Having well-administrated, secure member data remains the best answer to all these challenges. Yet, as we shall see, many schemes soldier on with their existing admin software providers, working long past their effective sell-by date. Some still hold the anachronistic view that there is so little competition in the administration software market that a review is not worthwhile. Others see change as synonymous with risk. Most are so run off their feet that resource-heavy reviews get kicked into the long grass.
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Pension schemes and their members currently face several complex and evolving challenges. Mastering these challenges will require schemes to have the right technology in place. The most urgent of them is the arrival of Pension Dashboards in 2023. Schemes will need to have their member data ready in time and ensure their current administration software can interface with the dashboards. But according to research by The Pensions Regulator, only 4% of DC schemes and 9% of DB schemes have started to digitise their member data in preparation, and only around a third (37%) of DC and DB schemes say they’ve had discussions with their administrator about their scheme’s data in respect of Pensions Dashboards. Meanwhile, members face difficulties of their own. Research conducted by Professional Pensions earlier this year revealed that most UK adults are driving towards a retirement cliff-edge, which is growing ever steeper.
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by the horns
Change, sooner or later, is necessary.
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Value for money:
A blind spot for pension schemes
Chapter one
A case of set and forget?
Provider selection:
Chapter two
The scheme view on risk and reward
Running tenders:
Chapter three
Cutting through the noise
Conclusion
Next chapter
Previous chapter
The regulatory ratchet moves only in one direction: compliance with Pension Dashboards will be mandatory, as will effective and digitised member communications, and member data will need to be accurate as well as complete. These goals cannot be achieved by coasting along, hoping that your existing provider is still fit for purpose.
%
30
of UK adults haven’t yet been enrolled in a workplace pension
12
of those who have been enrolled think they’re saving enough for a comfortable retirement
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As Albert Einstein put it “nothing happens until something moves”. Those that do not look do not find, trapped by inertia. But how long can they avoid assessing the alternatives?
Pension schemes are more reliant now than ever on getting good value from their administration software.
And yet, when we asked schemes how confident they felt about the value for money they get from their software platform, the response was noticeably muted, with a mean confidence score of just 6.37 out of 10. Our findings suggest that value for money is a blind spot for most pension schemes when it comes to assessing their administration software.
One consequence of this blind spot seems to be variability in service levels, not just between one admin software platform and another, but even between new and old clients of the same provider.
How confident are you that your administration software provider is offering you the best available value for money in the market?
Why do such disparities persist, given there’s such a pressing need for admin software which delivers value?
“New customers and clients have more features than what we are getting now. The functionality hasn’t moved with time. Some new entrants are more innovative and with more solutions.”
Survey respondent
Theirs wasn’t an isolated case of feeling underserved. Our research found evidence of gaps – sometimes significant ones – between what schemes want from their admin software and what they get. This was particularly the case for schemes in the public sector.
This was rated highly important by most public sector schemes, with an average score of 8 of out 10, and yet only 27% of those schemes had a facility enabling members to retire online and only 24% had an option for members to track cases digitally. The story was similar for other features, like having the ability to use workflow to collaborate with employers. Public sector schemes again valued this highly, rating it 8.09 out of 10 for importance, but currently, only 47% of public sector schemes have this option available to them under their current admin software provider.
LGPS administrators we interviewed gave several reasons, a major one being that the admin software market has traditionally been – at least until the entry of Civica in 2014, and Equiniti more recently – a one-horse race.
The legacy of this seeming lack of competition appears to be a kind of organisational inertia when it comes to actively making comparisons between different providers and considering their relative merits in terms of costs vs benefits.
“I also think, because there are only two or three big system suppliers that are suitable now for LGPS, there’s a little bit of a monopoly on the suppliers you can choose. I wouldn’t necessarily say we’re powerless on the scheme side, but they’ve probably got more influence because there is that monopoly feel, allowing them to drive developments forward at a pace that’s most suitable for them.”
Anonymous research interview participant
But our research also suggests that there’s another problem, much closer to home for schemes. In the next chapter, we’ll look at why the quality of schemes’ selection processes for admin software might be having a significant bearing on the quality of service they receive.
27
of public sector schemes had a facility enabling members to retire online
31
of public sector schemes don't give employers the ability to submit their montly payroll and pension data digitally
Software adaptability was even more important for public sector schemes, getting an average rating of 8.75 out of 10 – a clear priority when selecting admin software. But customer satisfaction currently lags some way behind, with schemes rating their admin software only 6.76 out of 10 on this crucial feature. Given how many employers participate in the local government pension scheme, it’s unsurprising that LGPS schemes should put such a premium on giving these employers the ability to submit their monthly payroll and pension data digitally. Public sector schemes in our study rated this feature 8.87 out of 10 in importance – second only to robust cybersecurity, and yet only two-thirds (69%) of these schemes have such a portal in place.
4%
1
2
3
4
5
6
7
8
9
10
9%
16%
21%
18%
17%
1%
1 = not at all confident, 10 = extremley confident
“The market for pensions admin software is very niche, with few players that can cater to the unique needs of pension providers and their members. In addition, the market has struggled to keep up with the pace of innovation we've seen in other sectors. Civica operates in multiple public sector software markets in the UK and globally. The breadth of knowledge and insights we've gained from these sectors has allowed us to introduce innovative features to our pensions software such as 'retire online' and the ability to track a case, using data-driven insights. These would be hygiene factors in almost any other market."
Chris Jones – Managing Director, Civica
One example of this is giving members the ability to track cases digitally or to retire online.
Digital disparities
The blind spot schemes have around the value for money they get from their admin software makes more sense when you look at their relationships with their incumbent providers.
The main juncture at which schemes can assess how their admin software compares to others in the market is during a competitive tender process. But 40% of schemes in our survey said that they hadn’t retendered their admin software mandate in the last 5 years – a proportion that stayed roughly consistent between private and public sector respondents.
The math suggests that this figure is troublingly high. The regulatory framework in the public sector states that contracts with a value of £213,477 (incl. VAT) should be benchmarked via a competitive tender process. All admin software mandates will surpass this figure over the full term of their contract, which is typically between 5 and 7 years. On that 5 to 7-year basis, you’d expect between 20% and 29% at most public sector schemes to say that they hadn’t retendered their admin software mandate in the last 5 years – not 38%.
In fact, according to our findings, the median length of schemes’ relationships with their admin software provider is 6 to 10 years.
In which year did your scheme last conduct a full competitive tender of its administration software mandate?
The picture painted by these results is of a marketplace in which admin software relationships are effectively entrenched and, from the perspective of the providers, almost entirely safe. In such circumstances, it’s all too easy for service levels either to drop off or to become more and more distant from the evolving needs of pension schemes. Judging from the disparities we uncovered earlier between what schemes want and what they get, this already seems to be happening. The simple answer would be for schemes to simply run more frequent tender processes, but as we’ll see in the next chapter, schemes regard competitive tenders as being anything but simple to conduct.
Our findings suggest that some public sector schemes aren’t running selection processes in line with what regulations stipulate, and certainly not often enough to exert competitive pressure on their provider.
Do you have a process in place for monitoring the performance of your scheme’s administration software provider?
Other findings from our research raise further concerns. Schemes need to be sure that their admin software delivers on the service levels agreed upon at the outset of the contract. That means that schemes should ideally have an ongoing monitoring process in place so that they can evaluate their performance. But our survey finds that only half of all schemes, whether private or public sector, have such a monitoring process in place – a fact which can only exacerbate the blind spot created by infrequent tendering.
Do you believe there are major differences between the different administration software platforms on the market?
Monitors
Does not monitor
Public sector
Private sector
Before 2017
2017
2018
2019
2020
2021
2022
40%
8%
13%
38%
0%
41%
12%
14%
24%
3%
7%
Yes 52%
No 48%
Overall
Sector breakdown
How far back does your scheme’s relationship with your administration software provider go?
Less than 3 years
3 - 5 years
6 - 10 years
10 - 14 years
15 years or more
11%
43%
25%
29%
30%
10%
26%
Given the low incidence of ongoing monitoring and competitive tendering, it’s perhaps not surprising that many admin software relationships go back a long way.
Dyed-in-the-wool
But schemes with no monitoring process in place risk more than being merely asleep at the wheel. It seems from our research that schemes that monitor tend to believe that there are major differences between the market’s administration software providers. Those without a monitoring process in place are far less sure. The message seems to be, you don’t see what you don’t measure and that many schemes won’t realise the value in monitoring until they start doing it.
Yes
No
Don't know
60%
39%
37%
Running competitive tenders for your scheme’s admin software mandate and having a robust process for monitoring its performance make good business sense – particularly given the many challenges that lay in store for schemes and their members. Why, then, is there such a low incidence of monitoring and tendering among schemes?
It’s certainly not because schemes lack the will to change providers. 60% of schemes (and 81% of public sector schemes) said that they would consider switching their admin software provider if there were a clear cost benefit to doing so.
Neither agree or disagree
Strongly disagree
We would switch to a new administration software provider if there was a clear cost benefit to doing so.
According to Steven Aspin, Employee Trustee Representative of Norfolk County Council LGPS, public sector schemes can be particularly risk averse when it comes to shifting from one admin software system to another.
Risk
“Having worked and dealt with different local authorities over years, I would say we’re sometimes a little reticent or nervous about being the leaders in pushing different barriers forward… It’s much easier to be sitting in the middle of the pack… We’re all aware from other government IT projects and even private sector projects that trying to be a trailblazer with IT can sometimes make you come a cropper.”
The recent Prudential case in which LGPS members were forced into long delays when divesting from their AVCs (partly due to changes in Prudential’s admin system) has provided a haunting reminder to the industry of how wrong things can potentially go, says Jo Darbyshire, Managing Director of Local Pensions Partnership Administration, which provides third-party pensions administration for 18 public sector clients and has recently completed a move to a new admin systems provider.
The trust built over the course of a working relationship can certainly be influential when deciding whether to switch providers – particularly if that relationship is more than 5 years old, as appears to be the case for many public sector schemes. But our study shows that schemes need to exercise caution and objectivity on such questions. Good working relationships don’t undo the sizeable gaps that are opening between what schemes want from their admin software and what they’re currently getting. The fact that so many schemes say they have a good working relationship with their administration provider suggests that solid relationships may not be as hard to come by as schemes first think, and that the grass may be just as green on the other side of the fence.
94
feel the pinch on resources.
Scheme administrator
Trustee board
Procurement team
Adviser/ Consultant
Other (please specify)
61%
42%
19%
65%
32%
44%
But there can be risks to staying put too. With Pensions Dashboards landing in the Spring, and McCloud remedy work required for public sector schemes in 2023, schemes have an ever-shrinking window of time in which to assess the readiness of their administration software and could end up facing penalties if they miss their deadline. Darbyshire adds: “The risks of delivering ever increasing complexity on systems that are not fit for purpose also carries reputational risk, and with robust and well-planned projects, moving systems can be done in a way that minimises disruption.”
So, when schemes say they would switch providers if there were a clear cost benefit to doing so, a big part of their calculation involves the cost-benefit of the tender process itself, not just the relative cost of a new provider vs. their incumbent. That in turn creates a vicious circle whereby many schemes don’t get to enjoy the value of switching their provider because of the cost of making that very selection.
23%
Strongly agree
The hesitancy that many schemes have around tendering isn’t just about overstretched resources. It’s also because of a perception that change itself is risky.
of schemes in our study took the view that switching to a new software provider brings risks, and 50% held this view strongly.
A further reason why schemes may be reluctant to tender their administration mandate more often – aside from resource constraints and risk aversion – is that they say they’re largely happy with the personnel at their current provider.
Relationships
80
of schemes overall say that they have a good working relationship with their administrator’s personnel, though this falls slightly among public sector schemes (71%).
What appears to be holding schemes back is the resourcing of those tender processes. 89% of schemes in our survey said that running tenders requires considerable internal resources.
Resource
Public sector schemes can turn to the National LGPS Procurement Framework for help with running their selection processes. This initiative aims to lighten the load for public sector schemes when conducting tenders for mandates like their administration software. Our research shows that there’s a pressing need for the Framework among LGPS schemes, but it also suggests that there’s still more work to be done. One reason why public sector schemes are feeling the pinch could be the personnel involved in running their tenders. Schemes in the private sector say they rely on a diverse array of roles to help run selection processes, including their advisers and consultants. In public sector schemes, reliance on third-party help is noticeably less, and the responsibility tends to fall on fewer roles: namely the scheme administrator and the procurement team. All this adds to the weight of running tenders.
And almost half (47%) said that they would like to be able to devote more bandwidth to running future competitive tenders. Public sector schemes are even more stretched.
Which role(s) handled most of the due diligence workload during the tender process?
91
Steven Aspin, Employee Trustee Representative of Norfolk County Council LGPS
“Deciding to replace our administration systems was a difficult decision; we had a number of different systems that did not interface and were not efficient. The risk of reputational damage when projects go wrong is high, particularly if there are delays in putting pensions into payment or pensions payroll migration does not go well. “The risk of that happening to your organisation presents a significant barrier to lots of administrators who are considering moving from one software provider to another. In our case, there was some expected disruption, as it’s impossible to move systems without some, but overall, thanks to careful planning and the expertise of the teams at LPPA and Civica, the transition has been a success.”
Jo Darbyshire, Managing Director of Local Pensions Partnership Administration
56
would like to have more bandwidth available.
Somewhat agree
Somewhat disagree
The challenges that lie in store for pension schemes and members can only be tackled through having a robust administration software platform in place – one which gives schemes confidence in its value proposition, and which can which provably deliver on what schemes need.
Change is never easy, but inertia is no longer tenable. Schemes must ask themselves, if not, why not?
To stand still on an issue as important as this is to go backward. Having intelligent technology in place to manage member and employer data is only going to become more critical as the years go by. And yet the clear message from our research is that this is precisely what many schemes are doing, particularly in the public sector. Cracks are now showing between what schemes want from their admin software and what they receive, both in terms of features and performance.
As the challenges around data begin to mount, those cracks could easily become fissures.
This makes it an important juncture for schemes to take stock of how their current admin software provider stacks up against others in the market and ask themselves whether they are getting the best value solution available. The evidence from our research is that there’s a lot more variety out there in the market than you might first think – and that schemes only tend to see these points of difference once they’ve made the leap and looked at what they’re getting. That’s an important lesson for those schemes that still feel paralysed by the cost of running tenders and the perceived risk of switching. How things appear now might not be how they look on the other side. Schemes will have enough worries to contend with in the years ahead. Doubts over their admin software should not be one of them.