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Reviewing Administration Systems
Over the past few years, many changes have taken place that have put pressure on self administered occupational pension schemes and the computerized systems that support them. Chris Potts from the Amersham office considers the issues involved.
A number of significant changes have occurred affecting the software market in recent years. Some suppliers have chosen to withdraw from this increasingly difficult arena. Others are trying to fill the gaps either with entirely new products or with updated developments of existing systems. As with the rest of modern technology, products are constantly changing and today's "must have" may be destined for tomorrow's recycling bin. Be warned, choosing a system is not an easy decision.
A relentless barrage of changes and external pressures has added numerous complexities in scheme design and administration recently. This is true even for small or relatively new schemes, which have seen administrative costs escalate above predicted expectations. Pressures come from many sources, whether from government, within the pensions industry itself or from financial markets. These include the Pensions Act 1995, Welfare Reform Pensions Act 1999, FRS17, the Myners Report, the Equitable Life debacle, the FSA Review and poor stock market performance to name but a few.
Many scheme members have access to the internet where private banking and other financial transactions are now commonplace. This has increased members' expectations for service standards and access to pensions information. It may not be surprising that pensioners tend to be the most active membership category on the internet probably due to earlier retirement ages, the importance of their pension as a source of income plus the affordability of home PCs and available leisure time.
The introduction of stakeholder pensions caused a recent distraction for software development opportunities for the insured market, away from the more traditional world of occupational schemes. As a result, many administrators and members of occupational schemes have not benefited a great deal from recent developments in pensions software.
It will be interesting to see how much impact the current "Pickering" simplification review will provide for administrators. Large-scale changes in pensions may well simplify matters in the long term but may well come with associated short-term costs to re-engineer administration procedures and associated systems. A pragmatic developer should be watching this space very closely indeed.
All these factors have made many employers and scheme Trustees consider reviewing their systems to gain improved efficiency and cost savings in order to accommodate the changes affecting their schemes and take advantage of the technologies available.
A review of systems should look at alternative systems. This should not be confined to purely seeking a replacement but should include potential improvements to your existing system.
The first step will be to identify your requirements. As well as the obvious need to store records and perform calculations, many peripheral processes and compatibility issues must be considered. Some of the items you will need to consider are:
- Record-keeping and interfaces to HR systems
- Producing member benefit calculations
- Bulk tasks such as pension increases and benefit statements
- Management reporting and accounts production
- Data conversion from legacy systems
- Compatibility with other office systems
- Internet access for members
- Future support and development
- Project management resources
- And, of course, cost!
Certain systems will be more suitable to your particular scheme than others. This may be due to the size of your scheme, the benefit design, your company's IT strategy, specific functionality required or the budget and resources available. Your requirements may include a large amount of bespoke design and development.
The choice of commercially available administration systems is limited, dominated by only a few main players. Setting up new schemes on new systems can take up to a year, or longer for large schemes. This means that system suppliers are kept busy and waiting lists can build up quite quickly.
Detailed research and evaluation is essential in selecting the system that is right for you. The resources and timescales required to do this must not be underestimated and you may consider seeking help with this process. Independent consultants can quickly evaluate your requirements and put you in touch with potential suppliers and help with the project management during the implementation phase.
Improving your administration system is a team effort and working together with your administration staff, IT department, scheme members, software suppliers and scheme advisors is very important. Getting it right will ensure that this exercise will not need revisiting for many years to come.
Chris Potts, June 2002.