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Contact: Jan Schapira
Tel: +44 20 7178 3127

UK
London, 23 September 2009

Mercer has called on trustees to make straight-through processing (STP) a basic requirement of the administration of their defined contribution pension plans. Its call follows the latest evidence that STP reduces the risk of human error, speeds up transactions, and reduces the overall cost of pension scheme administration.

Straight-through processing involves the automation of communication about investment transactions between scheme administrators and fund managers. Up to now, instructions and confirmations of prices and transactions to buy, sell or switch investments have been made manually by email, post or fax. The process is slow and runs the risk of human error when values are re-typed by fund managers and administrators. STP uses the common industry messaging standard ISO20022 via the SWIFT network, so transactions avoid manual intervention and are quicker to complete.

“In the last year, we have seen STP working successfully in a number of organisations – demonstrating enormous benefits to trustees, fund managers, scheme administrators and, of course, scheme members,” said Claire Ross, head of service implementation in Mercer’s pensions outsourcing business.

“With fund values rising, investment trading by individual scheme members is starting to pick up again, and trustees face increasing pressure to ensure their trading information is accurate and up to date – especially where online access is provided and members expect their transactions to be conducted in ‘real time’,” she said.

The average timing for making individual pension fund transactions is five working days, but with automated end-to-end dealing through STP it can be reduced to three days or less. The risk of human error is virtually eliminated.

Ms Ross added: “Pension scheme risk has become a serious business issue at the corporate and trustee level. As defined contribution schemes become more mature and individual transaction values increase, human errors can expose trustees and employers to considerable financial risk.  Some compensation cases have already involved six-figure payments.”

A number of fund managers and third-party administrators have now invested in STP, but other companies have been slower to appreciate the benefits and move to the new process.

“STP has the support of the Pensions Regulator but, to become the industry standard for investment transactions, the drive may need to come from pension scheme trustees. We believe trustees should now be demanding this service level of their current providers and specifying it in their tender documents,” said Ms Ross.

Mercer is a founder member of the STP Development Group which has been trialling and testing the process with its clients and fund managers. The work undertaken by the group has laid the foundations for other companies to enhance their service through STP. They can benefit from the group’s test matrix and access the SWIFT network by building their own systems, buying a licence or hiring a bureau.

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Contact: Jan Schapira
Mercer Press Office
Tel: +44 20 7178 3127