Outsourced pensions management: what you need to know 

Many pension schemes are turning to outsourced pensions management to ease the governance burden and help guide their journey.

Take a closer look at outsourced pensions management

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.

Pensions management risks and benefits

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:

  • Provide expert technical knowledge

    An outsourced pensions manager should be on top of the latest developments and armed with experience gained from advising multiple schemes. For example, the Pensions Regulator’s (TPR) new General Code is expected to impose requirements on schemes that are best resolved by referring to best practice and a wide range of advice. Read case study A. Governance considerations such as cyber security may also require specialist knowledge to protect your scheme. Read case study C.

    Sign up for our webinar on TPR's General Code and to be alerted when we set the date.

  • Respond to the scheme’s changing needs
    Many schemes are considering buy out, master trusts or other options on the consolidation spectrum. An external pensions manager will have the specialist knowledge and contact network to help guide a scheme through these transactions. Read case study B.
  • Act as scheme secretary
    Appointing your outsourced pensions manager as scheme secretary may save costs if you currently pay for both separately. Outsourcing to a specialist may also ensure a better member experience — especially when members are enquiring about the value of their pensions and many people are approaching retirement. Member engagement and communication are increasingly important and an external adviser can provide communications that encourage members to save and understand their benefits.

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. 

Key considerations for outsourced pensions management

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.

How outsourced pensions management works at Mercer

At Mercer we help many schemes with pension management in a wide range of scenarios. Here is what we think is important when schemes trust us with their pension management:
  1. Experience
    Our team comprises individuals who have built their knowledge and practical experience in a variety of advisory and in-house roles. This collective experience ensures we know what works well for similar schemes and enables us to deal with any issue.
  2. Depth
    We believe in the right person for the right job at the right cost. We can assign an individual whose experience and approach most closely matches a client’s requirements. We can also bring in additional resource quickly from Mercer and our sister companies such as Marsh to support large projects or complex initiatives.
  3. Cost efficiency
    Clients can save money by accessing the specialist skills and extensive knowledge of the pensions managers who have more exposure to other schemes in the industry without the costs associated with using large pensions consultancies or paying expensive lawyers. The experience for both the company and the members should be very similar to that of having an in-house pensions manager.

TPR’s proposed General Code requires schemes to update their processes, policies and procedures. Many pensions managers are struggling with these demands because they don’t have a broad view of the market.

To overcome this problem, a scheme’s pensions manager asked Mercer for help educating their department and the trustees about the Code’s requirements, what is expected of them before the Code is published and what will be required of them after the Code is published. 

Mercer also made sure there were enough resources so that the scheme will comply within the timescales set out in the Code. Mercer’s involvement created cost efficiencies because we had the relevant knowledge and expertise as well as standard templates that can be tailored to the scheme’s requirements.

A scheme with an in-house manager needed support in responding to the employer’s decision to transition the DC section of the scheme to a DC master trust. Mercer assisted the trustees and the employer with important aspects of the transition including: 

  • Providing training to trustees on actions associated with the transition
  • Coordinating advisers to ensure a smooth process that delivered on time
  • Management of the member experience on an ad hoc basis

Mercer worked with the in-house pensions manager to ensure the member experience met expectations and was consistent with the company’s culture. Communication with members was aligned with the company’s messages about the benefits of a master trust and to address any member queries. The trustees were reassured by Mercer’s ability to take a lead on co-ordinating advisers and ensuring the right advice was sought at relevant times.

TPR is increasingly concerned about the threat to pension schemes from cyber incidents. This is a highly specialised area out of the scope of most pensions managers. At a trustee training day we provided a scheme’s trustee board with cyber security training which also set out TPR’s expectations of the trustees. The pensions manager knew that Mercer’s sister company Marsh offered cyber security services and appointed Mercer to produce documentation such as a cyber security policy and an incident response plan in line with TPR’s expectations. This allowed for the documents to be provided cost effectively and in line with regulations. Mercer was also responsible for obtaining the policies of the trustees’ advisers to allow the trustees to hold them on record.
Grace Bensley
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