Bank bailouts, bras and pension administration all have one thing in common – they are seen as necessary evils.
Professional Pensions reports that almost half of schemes interviewed are happy to say that they lack an honest relationship with their administration provider. Unfortunately the article doesn’t provide too much of an indication of what is dishonest in the relationship.
Given that I started my career in pensions administration I find this depressing, but not surprising. This is partly the fault of the firms that offer a third party administration service. They have been happy to have administration seen as a cheap commodity. Fixed fees rarely feature as an element in actuarial or investment consulting, but firms enter into fixed fee contracts for administration services as the norm. Fees are normally pitched low to be “competitive”.
If there is a lack of honesty in a relationship it is because third party administrators are often dishonest about the fact that pensions administration, and in particular DB pensions administration, is extraordinarily complex and requires a great deal of expertise to carry out effectively. They are also dishonest about the true extent of data problems in schemes which they administer (See our previous post for our thoughts on data) . This dishonesty is driven by a desire not to upset their clients. They fear that being honest with their clients, telling them the true cost of a decent administration service and the true cost of sorting out the data (regardless of the potential long term savings which might be achieved) will result in the switching of services to another provider which is happy to maintain the fiction about pension administration.
But dishonesty and fear is not a basis for any type of relationship. Pensions administrators do themselves and their clients a disservice by continuing to be dishonest on these points, whatever the motivation. Perhaps it’s time they took a chance and explained exactly what they do for their clients, why it has value and set out the sorts of things they can do to help the client deliver pension scheme members a service that meets their requirements cost effectively.
But relationships are never one sided. Clients need to talk to their administrator and be clear about their requirements, but they also need to understand that cost effective and cheap are two different things. I’ve never met a Pensions Administrator who wants to provide a client with a poor service but the old adage that you get what you pay for holds true in pensions administration as elsewhere.
Administrators need to help clients understand that pensions administration, and on reflection probably bras as well, have the potential to be much more than a necessary evil.