Most employers outsource pension administration

Three-quarters (75%) of respondents outsource the administration of their pension scheme, up from 69% in 2012, according to research by Aon Hewitt.

Its 2013 Benefits administration survey, which questioned 361 employers with a combined £97 billion in pension assets and more than two million employees, found that nearly half of the defined benefit (DB) pension schemes covered by the survey are closed to new members and to future accrual.

The decline in active members of DB pensions has triggered an increase in outsourcing administrative tasks that were once performed by an in-house team.

The research also found:

  • 42% of respondents do not know how many employees will opt out when auto-enrolled and what burden this might place on their administration and communications teams.
  • Half of respondents receive other services as well as administration from their outsourced provider.
  • All the smaller schemes surveyed outsource multiple services to a single provider, while only 14% of the larger schemes do so.
  • 79% of respondents were satisfied with their pensions administration service, either rating it as ‘excellent’ or ‘good’.
  • Electronic communications and online member self servicing were the most popular options for improving administration quality and efficiency.
  • 36% of respondents will continue with their existing pensions administrator to assist them with auto-enrolment administration, while 31% will do the work in-house.

Colin Hamilton (pictured), commercial director for benefits administration at Aon Hewitt, said: “While the survey highlights that the main driver behind the decision to outsource continues to be cost, our experience tells us that the decision to outsource is rarely based on cost alone.  

“There are a number of other factors that are driving this rising demand. Scheme administrators are facing an increasing workload driven by legislative changes, such as auto-enrolment, and meeting member expectations around service quality, engagement and online functionality, while organisations try to control costs and reduce risks.

“For many in-house administration teams, outsourcing is providing a valuable solution to managing these challenges.”