Outsourced pensions management: what you need to know 

An outsourced pensions manager can ease the governance burden and meet your scheme’s changing needs.

Managing a well-run pension scheme is an increasingly onerous task. Additional governance requirements are always in the pipeline, making running and governing a scheme more and more challenging. Then there are the individual complex projects that a scheme may need to undertake — from complying with new regulations to targeting buyout or master trust. 

The pensions manager plays a critical role in ensuring and safeguarding the good governance of pension schemes. The basic tasks of managing a pension scheme include facilitating trustee meetings, responding to member enquiries and arranging trustee training. However, cost pressures mean many companies are not in a position to directly employ the necessary pensions expertise or resource to deal with issues in-house. And increasing demands mean internal pensions managers are often faced with extra work that is beyond their experience.

Good governance is essential to manage risk, achieve value for money and ensure the best experience and outcomes for members — any scheme’s ultimate priority. However, it comes at a cost. Scheme sponsors and trustees face constraints in people, time and expertise and are struggling to provide the right resource to deal with pensions.

Many schemes already outsource all their pension management and those schemes grappling with heavy workloads may want to choose this option. It doesn’t suit everyone, though. Some schemes prefer to retain their trusted in-house pensions managers with deep knowledge of the company. But when these people leave or take a break there is a big gap to be filled.

In this demanding environment we find even the largest schemes need help on specific issues and at certain times — and that’s where outsourcing can come in.

Getting pension management wrong creates potential risks for your scheme — and these risks are increasing as complexity and workload expands. Here are some examples:

• Lack of compliance with regulations, exposing schemes and companies to financial and reputational damage
• Bad member outcomes if the scheme is not run properly
• Poor member experience — for example if requests or questions are not answered appropriately

Outsourcing pension management, or aspects of pension management, to experienced professionals will reduce these risks. There are also many positive benefits for schemes that outsource their pension management. 

Here are some of the services you should expect from an outsourced pensions manager:

The burden of pension management is building against the backdrop of a changing and highly competitive employment market. Experienced people are leaving the workforce and their potential replacements are in high demand and expensive. 

When in-house pensions managers depart or take extended time off they can leave a chasm of experience and knowledge that is expensive to replace. Faced with these challenges, schemes often opt for outsourced pensions management — either permanently to an adviser who understands the company’s culture or as an interim measure. 

As we have already said, outsourcing management of a pension scheme isn’t for everyone. But the mounting challenges facing schemes mean external expertise is likely to provide benefits at some point. 

Here are some points to think about if you are considering outsourced pensions management:

• Does a potential provider understand your company culture? You need the pensions manager to work closely with trustees, the parent and other stakeholders and potentially to be the main contact for your members.
• At the same time, is the potential provider equipped to present you with sufficient challenge if necessary to improve performance and promote accountability?
• Does the outsourced pensions manager have the breadth of knowledge, experience and services you need — now and in the future? 
• Bearing these points in mind, think about which providers you already work with, perhaps as an administrator or in another capacity, to get the best fit for your scheme.