The decision by any trustee board or employer to appoint a new administrator to their pension scheme is not one that is taken lightly. With few exceptions it will involve transitioning data between different software platforms, as well as a knowledge transfer from one firm to another.
Transformation in transitioning
The way in which these transitions take place probably looks quite different now compared to five or ten years ago. Historically, transitions were very much about the “data dump”, with the new administrator looking to get data mapped from the existing system to their own, and to inherit whatever files were available. These would usually be in various formats - paper, microfiche, electronic and in some cases, Excel files. After this, it was just a case of rolling up the sleeves and making the most of what you had.
Nowadays a properly managed transition will look very closely at the data being inherited, carrying out various audits to ensure its integrity, and measuring it in line with The Pension Regulator’s guidance. Part of the onboarding process should be a complete data audit and cleanse. Most defined benefit schemes will be on some path to eventual buy out, so getting data to a specific standard, and then maintaining or improving this standard, is a key objective. It is fair to say that scheme sponsors will be taking more of an interest in the transition process and how it is managed than they might have in the past.
The way in which members engage with their scheme administrator has also evolved in recent years. Many schemes now offer the opportunity for members to self-serve via an online portal, or in some cases, mobile devices. This is only possible if there is automation of calculations, which relies on having clean data, and in putting together a comprehensive Benefit Specification, to allow the required coding of systems as part of the transition. For defined contribution benefits this is equally important, as members now want the opportunity to go online and to switch investments in real time.
The onboarding process is key in building all of the functionality that will facilitate member self-serve.
Fail to prepare …
A well-managed transition will have a project manager at the helm to ensure that key milestones are hit, that there is visibility of progress to key stakeholders through effective reporting and to identify and mitigate against any risks, in advance of these materialising.
Aside from managing the data transition, the project manager should also ensure the following:
- The transfer of all treasury functions, which is particularly key when the transition is happening around year end and the preparation of accounts is in progress. It is not uncommon for the incumbent to retain responsibility for the accounts preparation and audit process before handing over.
- The transfer of the pension payroll where this is part of the services being provided. It is usual for at least one parallel run to be undertaken, and again it is important that this is managed effectively, particularly when onboarding is occurring around the time annual increases are awarded, and/or around tax year end.
- The thorough transfer of all key scheme documentation and individual member records. Nowadays, these should all be held electronically and, in a best case scenario, they will be properly indexed. Where paper records do exist, these should be identified and the project plan should include for these to be digitised as part of the transition.
- That there is clear responsibility around the work in progress at the time of the handover, with agreement reached between both parties on who is dealing with what. In some cases, a blackout period will be agreed, particularly where defined contribution benefits are involved, with a period where member transactions are not allowed.
- Where required, an administration manual should be put in place to support the employer and trustees in their future dealings with the new administrator.
- Effective member engagement, where all members receive a communication advising them of the switch in administrator, and providing key points of contact going forward.
Co-operation and collaboration
The process is of course much more detailed that this summary describes, and in many cases could run for anywhere between 12 and 18 months depending on the size of the scheme. Any transition will only be successful if it is properly planned and managed, and if all parties work in a spirit of co-operation.