Why we are building relationships with pension administrators

New policy initiatives such as Pensions Dashboards and value for money, and unforeseen challenges like Covid and cyber leaks, have once again put the importance of good administration back in the spotlight.

Pension scheme trustees are the first line of defence for savers. That’s why driving up standards of governance and administration in pension schemes is central to our work and vital to ensure savers receive the pensions they are due.

But administrators also have a crucial role to play which is why, in our role to protect savers and enhance the system, we are changing our regulatory approach to work more closely with administrators.

We are innovating by using our successful supervision approach to establish open, two-way relationships with a number of strategically important pension administrators to understand the challenges and tackle the risks.

Drivers for engagement

We are clear that good quality data is the bedrock for a well-run pension scheme. It is key to improving the accuracy of annual benefit statements, valuations and membership data, and is line with our expectations for trustees.

Administrators are integral to this, which is why we are determined to find out more about how trustees interact with administrators, and what barriers currently exist.

At the same time, the Pensions Dashboards Programme has become a catalyst for ramping up engagement between trustees and their administrators, who are pivotal to the success of the programme.

These drivers of engagement have highlighted a need for us to enhance our regulatory approach to engage directly with administrators. We want to understand more about what makes for good and poor administration and be in a position to respond to issues as they materialise.

Building two-way engagement

Since 2019 we have been proactively engaging with DB, DC and PSPS schemes, interacting with trustees, managers and sponsoring employers of pension schemes to identify best practice and identify risks to saver outcomes.

While we hold trustees to account on administration matters, we also use our influence to collaborate and drive benefits for savers in other ways.

In January 2022, we created our first Administrator Relationships function. It’s a team dedicated to engaging directly with third-party pension administrators to extend our reach and influence. Initially, we undertook a pilot with a voluntary administrator to explore potential risk areas and the level of burden this approach could have.

The engagement was perceived as being mutually beneficial, and the pilot administrator received a report on areas to consider for business change. These included enhancing internal checking processes, recognising the need for a clear IT and technology plan (including the exploration of digital verification practices), and developing better communications. The pilot administrator took these considerations into account, helping to improve the quality of its services to savers.

The feedback we received from the administrator was very positive. It was clear the approach was seen as productive and collaborative, and not simply a tick box exercise.

The pilot worked well for TPR also. We gained a better understanding of current market challenges in more detail, enabling more visibility of administration risk, and have been able to embed the lessons from the pilot into the ongoing design of the Administrator Relationships initiative.

Following the pilot, we started exploring a wider set of focus areas with further third-party administrators, further improving our industry knowledge and respond to emerging issues. We are now focusing on:

  • Systems and processes
  • Data quality
  • Trustee focus, understanding and willingness to pay
  • Member engagement and communication
  • Pension dashboard readiness

Stronger insight

Thanks to our initiative, we are now proactively engaging with third-party pension administrators on a voluntary basis. Our insight into this important industry, and how it works with scheme trustees, is stronger than ever.

Our work already covers around 10% of pensions administration market, representing around nine million members in 1500 schemes. We are looking to expand this in due course.

We’re tackling the risks of poor administration, driving up standards, promoting best practice (or identifying areas where guidance would support standards) and learning more about the core challenges and issues third party pension administrators handle on a regular basis. These include responses to cyber security incidents, resourcing issues, the recruitment and retention of a skilled workforce and the management of data quality.

This insight, which builds on our existing work on trusteeship and value for money, is helping us support and influence the administration industry to make improvements to standards, build confidence in the pensions system and ultimately protect savers.

By Cliodhna Judge, Interim Head of Relationship Supervision, Front Line Regulation