It is inevitable that throughout the lifetime of a pension scheme the provider of administration services will change at least once, in fact the norm could be as many as 5 or 6 times. This change could happen for a number of different reasons; poor service, outsource or merger and acquisition activity.
Irrespective of the reason there is responsibility on all parties that they will handle the matter professionally, never losing sight of the fact that the interests of members remain paramount throughout a process that could in some cases run for one to two years, but more commonly will be around six months. Examples of issues which could cause concerns with administration handovers include the following:
- Delays in handing over data and records, and attending meetings
- Unreasonable charges
- Deterioration in service during the notice period
Exit Agreements
It is common now for new Administration Contracts to include Exit Agreements which will give clarity on what will happen at the point when notice is served. It does seem odd to be including this when contracting with a new client, but it will prove beneficial down the line if there is a change, you never know what is around the corner and how soon it could happen.
This Agreement will cover the terms of the exit including SLAs for provision of data the scope of services and the fees. Where contracts are currently silent on Exit then it is recommended that an Annex is added to include the details of what would happen. Trustees can either draft this themselves, or better still ask their administrator for a copy of their policy on transferring scheme administration.
There will rightly be fees to be charged on transition for the handover of data and documentation. The outgoing administrator should not however view this as a blank cheque and an opportunity to generate extra revenues. It is only fair that administrators are remunerated for their work, but this should be at standard rates and be fully transparent. It is recognised that Exit Fees will depend on the size and complexity of the scheme, and other factors such as how many data cuts are required, which services are in scope to transfer etc.
“Back in the day” it was not uncommon for the outgoing administrator to simply toss the records over the fence and let the new party get on with it, especially where some or all of the records were paper based. Now that almost all data is digitised in some shape or form, and with Dashboards driving the need for more automation this approach does not work and a proper handover is needed, so that the incoming administer understands the data they are taking on and how it has been held on the incumbent’s database.
PASA Guidance
The Pensions Administration Standards Association (PASA) have very kindly produced some guidance on this matter and have developed an industry standard Exit Agreement. All of PASA’s corporate members sign up to their Code of Conduct on Administration Provider Transfers.
It is hoped that by following this code any disputes can be avoided but where they do arise PASA offers a Dispute Resolution Service (DRS) to schemes experiencing difficulty in moving from one administrator to another. The service is designed to offer an expert and impartial view on whether the parties have acted in line with the detail and spirit of the Code and to bring the parties together in a positive way, thereby enabling the smoother transfer of administration and services.
PASA representatives considering any issue brought forward for mediation will be brought together to form a Determinations Board, members of which will always be independent of any commercial third party administrator (TPAs). The DRS is easy to access and affordable to schemes affected. However, it should be a matter of last resort, the parties involved should be capable of working through any difficulties, and the presence of an Exit Agreement should hopefully bring clarity to matters that hitherto have caused delays and disputes.
Planned Amendments to the Code
To strengthen the position on Transfers there are two planned changes to the Code from the start of 2023 to reflect the points mentioned earlier. Firstly, any new administration appointments must set out the terms in the event of a subsequent transfer of services, and secondly for existing appointments the administrator should have a clearly stated policy on transferring schemes where existing contracts are silent.
In most cases a switch of administrator is a last resort for Trustees, it is usually far better to work with the current administrator to resolve any issues. Sometimes however this is not possible or there are other issues meaning a switch is inevitable. PASA are to be applauded for formalising their Code of Conduct, surely the industry can adhere to it and avoid the need for any recourse to its DRS. Remember the golden rule, there are members behind all of this who should not suffer because of the actions or inactions of others.
