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Employers face task of improving staff pension benefits while under growing pressure to cut scheme costs


Pressure is growing on employers to give more pension benefits for lower costs, new research has suggested.

The report from Hewitt Associates also found closure of schemes to future accrual and succession planning issues are driving change in pension administration strategy.

While cost reduction was an issue identified by Hewitt in its 2009 survey, data from the 2010 survey reveals pressure on cost reduction has escalated over the past year.

Reducing costs is now the prominent concern for 79% of pension managers and 58% of trustees. Pressure to improve quality is not far behind. It continues to be a top priority for 59% of pension managers and 43% of trustees.

At the same time as reducing costs and improving quality, 80% of trustees and 55% of managers want to improve service measurement standards; 70% of pension managers and 40% of trustees would like to implement a full data cleanse; and the focus on introducing web service for members is important to 50% of managers and 40% of trustees.

A trend towards standardising administration and more outsourcing of broader pension function was also shown to be emerging.

Support and executive buy-in for outsourcing is becoming less of a barrier to change and there is increased desire for more stringent service measurement, introduction of web and data cleansing to increase service quality and accuracy

The Hewitt Pension Administration Survey 2010 reflects the responses of 97 UK scheme managers and trustees from both defined-benefit and defined-contribution schemes, with assets totalling almost £60 billion.

Ian Terry, pension administration business development manager at Hewitt Associates, said: "As the economic downturn has forced companies to tighten their belts, our research clearly shows that this has also been felt by pension schemes. Many remain faced with what may appear to be an impossible task: to reduce costs while improving quality. Simultaneously, trustees and pension scheme managers are operating in a fast-changing UK pension landscape - with many defined-benefit schemes closing to future accrual.

"This kind of complexity is leaving many pension schemes struggling to prioritise their limited resource. If pension schemes are to meet these challenges head on, the approach to pension administration must fundamentally change from the traditional model to one that is more customer-centric.

"It's unsurprising that cost and quality remain a focus for pension schemes. Based on our experience and conversations with clients, the traditional approach to pension scheme administration will not enable schemes to meet these demands.

"Over the past six to 12 months, we have seen a much higher volume of schemes implementing market review of existing arrangements or considering outsourcing for the first time. Managers and trustees must therefore consider implementing new practices and approaches that will facilitate high quality control and efficient administration."