Outsourced or in-house? How the pensions manager role is changing
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Providers of outsourced pensions management are stepping up recruitment and claim to see a lot of demand from employers. What has changed to turn what used to be a firmly in-house role increasingly into a third-party service?
Pensions managers sit at the cross-section of human resources and finance, often looking after complex defined benefit schemes and a defined contribution scheme alongside for the employer, while also supporting the trustees – but as the pensions landscape changes, so does their role.
In-house pensions manager offers continuity of knowledge
One pensions and reward professional who wishes to remain anonymous said having someone take on this function in-house has the advantage of continuity of knowledge, not least because many stay in their role for long periods of time.
“There are lots of quirks that pension schemes can have – no two pension schemes are exactly alike. Having somebody who is familiar with all that information is very helpful, particularly if you’re looking to plot a route to wind up or transfer a scheme to a master trust,” they said.
Having an in-house pensions manager also means there is always someone who can assist with pensions matters, which range from annual accounts and chair’s statements to triennial valuations or looking at new regulations.
“Because pensions are a specialised field, having somebody who is able quickly... to query and pick things up and drive things forward in-house is seen as something that’s quite useful, rather than having to get in touch with somebody who’s a third party,” they noted.
Loss of DB pushes role deeper into HR
However, once a scheme has become self-sufficient or has been simplified so that there is only a contract-based DC scheme left, “you can outsource most of that”, they admitted.
The maturity of DB schemes means more of them are being bought out or winding up, which in turn has an impact on the role of the pensions manager where companies continue to have one. Changes like these alter the role to one that is more concerned with the overall rewards package, placing it clearly in the HR function.
DC requires more financial education of employees, which plays into the growth of understanding of employee wellbeing, again linking it more closely with HR. The training and educational aspect is part of what Louise Dale, pensions manager at Leonardo, thinks are among the benefits of having an in-house occupational team. “We are very member focused, we offer far more added value services regarding member communications, training sessions, benefit awareness,” she said.
The in-house presence also makes pensions more human, she believes. “I think our members like that we are their colleagues, we are a go-to for issues to be resolved, we put a human face on the pension, she said.
Companies want to remove key man and succession risks
However, it appears more companies are preferring to hire an outsourced pensions manager or are perhaps forced to do so. Gillian Graham, a client director at Punter Southall Governance Services, said often pensions managers had been in their role for a long time and when they come up to retirement age, the company realises that it does not have a succession plan because there was only one person in the role.
“When it gets to that point, companies very often decide they don’t want to employ somebody and have them on their books,” she noted. Outsourced providers have a team approach, which removes the succession and key man risks, she added.
In addition, DB schemes are more mature now, while “the DC part has often gone into the HR team - it’s easier to do, it’s not the specialist knowledge as [is needed] on the DB side of things”, and the staff able to take over this part cost less to employ.
Another reason for the growth in demand for outsourced management is the conflict of interest, she said, which has come into greater focus. “For a long time pensions managers would try to operate with two hats on, for the company and trustees. But now for bigger schemes you might retain a company facing pensions manager and have the trustee role outsourced,” she said. This would happen on a rolling contract basis. “We do that for quite a lot of clients. We'd call that a trustee executive role or something like that,” Graham added.
Will new governance rules increase demand?
Demand for outsourced pensions management and trustee services will only increase, Graham predicted. “I think we’ll be busy in the coming 18 months with the new requirement for the own risk assessment,” she said, which will be “quite onerous”.
The new governance rules were being consulted on earlier this year as part of the Pensions Regulator’s proposed single code of practice; they go back to the EU’s IORP II directive on pension funds from when the UK was still a member state.
The ongoing high demand means there is no huge pressure on fees, she said, although “we’re no different to any of the other trustee services that should be subject to regular review”, said Graham.
Bill Jangra, a senior pensions executive at Pegasus Pensions, also suggested there was not much pressure on price, though longer-term engagements might come with a lower rate to make the cost more palatable.
External providers can train in-house team
He echoes Graham’s view that companies are keen to reduce key man risk, but said they are also looking to tap into the “richer experience” of a professional firm. “We have the benefit of working with lots of clients so we can see what works," he said; in addition, he and his colleagues will resort to the expertise of the whole team.
However, not all companies move to an outsourced provider permanently; some engagements are interim positions to cover for maternity leave or bridge a gap while another in-house person is being trained up. This was the case in his last engagement, said Jangra, where he helped bring an in-house person “up to speed” before they took over, although he admitted that often clients fail to succession plan.
He said he works collaboratively with the existing in-house team at a client. “All my engagements continue to develop the team and look with a fresh pair of eyes,” he said, perhaps reassigning roles where appropriate.
Jangra said engagements do not just end as contracts are open-ended. “If done correctly you are an extension of that team, you do the work, it’s not a magement role.”
What is your view on outsourcing pensions management?