DB pension operations can deliver better value for Charities
The pensions industry needs to improve its use of technology, driven in large part by Pensions Dashboard requirements, but also by TPR’s broader innovation hub initiative. The charity sector is particularly well aligned to this objective as charities need to ensure charitable resources are delivering value for money, and that donations are used as much as possible for the charitable mission.
What should charities and their pension scheme trustees focus on to ensure value for money in the operation of their DB scheme?
In the past, like much of the pensions industry, DB pension schemes in charities had a strained funding position, and deficit contributions were the primary DB pension cost for charities. But, as deficit contributions turn off with improved funding positions (our latest benchmarking report shows that 44% of charities are no longer paying deficit contributions), the primary DB pension cost becomes the administration costs. Running costs within charity pension schemes remain wide ranging, often reflecting scheme specifics such as the number of members, the complexity of the benefits, the number of sections, and whether a DC section remains within the pension trust. However, with some breathing space around funding levels, and the need to complete impending data projects, now is a good time to consider whether those running costs are truly providing value for money.
A sensible place to start is the operational tools and systems used to administer and manage the scheme. Other areas of financial services are streets ahead in how they offer their service online and in customer experience. Even DC pension schemes are comfortably sitting in a modern world, but some DB schemes seem to have been left behind – a gap that directly impacts BD pension scheme value for charities.
Voices however are beginning to rise AND there is no longer the excuse that the right systems don’t exist. The market has heard and delivered.
Where do the savings lie?
Charities are a people business with the human touch often being the driving force behind meaningful impact and engagement.
While automation might sound like a step too far towards standardisation and applying a number to every pension scheme member, there are gains to be made in the right place that will improve the member experience as well as improve value for money.
You can have a system with clean and complete data, serving automated and accurate calculations based on specific benefit specifications at the touch of a button. Even better in the member’s hand through a phone app, where they can toggle through retirement outcomes and scale up or down to test options and scenarios.
With the calculations taken care of, the invaluable humans administering the scheme can focus on support, guidance and communication to those members or their loved ones going through particularly difficult life events.
How painful is automating the administration?
Not as painful as you might think. DB schemes are having to grapple with data projects at the moment anyway, like equalising GMPs and connecting schemes to the Pensions Dashboard. Automating the administration can form part of this data journey and even deliver savings on these other data projects.
Don’t therefore be put off by the initial work to achieve automation. The rewards are there to be reaped.
What is the outcome?
Pension providers and members should expect a secure and automated benefit calculation service. Experienced pensions professionals should be on hand to enhance and improve the service. Service reports should be available on request and scheme data should be transparent and accessible to all necessary stakeholders.
This is possible within DB administration, and the charity sector should not miss out. The need is pressing, more so where every penny saved on the pension scheme administration frees up another penny to fund the charitable mission.
Read our efficiencies report that outlines where savings can be made across the pensions industry.
Read our DB pension scheme charity benchmarking report to see how your scheme stacks up against others in the sector on a range of different metrics.
Connect with Alistair on LinkedIn to keep up to date on charities pensions news.
