The closure of defined benefit schemes, escalating costs and regulatory changes are the top reasons driving UK and European companies to outsource the administration of their occupational schemes, according to HR Consultancy Mercer.
Interest in outsourcing scheme administration is more prevalent amongst HR leaders than amongst their peers in the finance function or on the executive/board. A third more HR leaders than other representatives wanted to outsource their pension administration within the next three years.
Research amongst a cross-section of large private and public sector organisations, conducted by Mercer and Chatham Partners, showed that just under half the participants (45%) were expecting to outsource in the next three years, with a further 10% expressing interest in the longer term.
Interest in first time outsourcing is stronger in continental Europe that the UK, with 58% of respondents in Europe planning to outsource in the near future compared to 27% in the UK.
In the UK, the main driver for outsourcing administration is the closure and wind-up of defined benefit schemes followed by the management of increasing costs and coping with the impact of regulatory changes. In the rest of Europe, the factors are more evenly balanced between cost management, regulatory changes and changes in plan design, together with the improvement of HR services to employees.
Jonathan Mindell, Mercer's head of outsourcing for Europe, Africa and the Middle East, said: "In a worsening economic climate, we see companies looking for ways to manage their pension liabilities. Outsourcing to pension specialists should minimise the risks of regulatory non-compliance, provide fixed fee certainty, and ensure that investment continues to be made in the latest processing technology and online member services."
"In the UK, the closure of defined benefit schemes has focused companies' minds on the long-haul process of asset value assessment, data cleansing and other time-consuming administrative tasks, and the excessive work-loads these will pose for the smaller in-house teams.
"Overall accountability for in-house scheme administration often falls to the HR function, with the increasing burden it presents for resourcing and compliance. It's not surprising, then, that HR is keener than other functions to outsource this increasingly complex and challenging area of responsibility."
Access to better technology is an additional factor affecting decisions to move in-house administration to external providers in both the UK and the rest of Europe.
The top benefits of outsourcing most frequently cited by survey respondents include access to improved technology and best practices, as well as cost savings. Better technology was described by participants as improving employee self-service, increasing online functionality and enhancing data mining and reporting capabilities.
Additionally, 40% of companies would like to achieve cost savings of over 15% by outsourcing their pension administration.
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