Administrators and Trustees must prepare for a tsunami of member requests

A perfect storm is brewing and schemes should start to prepare for significant rises in sponsor and member-driven requests this autumn.

A combination of redundancy exercises, increased requests for early retirement and divorce pensions splitting, coupled with nervousness about job prospects and concerns about the security of pensions, will significantly increase demand on schemes and their administrators.

Early indicators in July 2020 suggested that the number of employees on UK payrolls was already down around 750,000 when compared with March 2020. 

But this could be the tip of the iceberg, as the Chartered Institute of Personnel and Development is predicting that 38 per cent of private sector companies plan to make redundancies over the coming months.

Some experts are even suggesting that when the government’s furlough scheme ends in October, unemployment could more than double to 3m.

Early retirement requests are also likely to increase; figures from the Office for National Statistics show that the number of people retiring before age 65 has risen by 55,311 in the past four months compared with the period November 2019 to January 2020, suggesting the pandemic is driving a rise in early retirement.

Pension splitting requests will also rise as divorce correlates strongly with recessions, and trustees should expect a 5 per cent increase in these requests. This is based on the fact that divorce rates rose by 4.9 per cent following the 2008–09 recession, and increased by approximately 5 per cent following the previous 1990–92 recession. This can only be compounded by the effect of lockdown.

Significant increase in workload and costs

For every redundancy exercise, there is not just the need to quote leaving service benefits. Our modelling suggests that for every 100 people on notice of redundancy, the administrator can expect 300 separate activities. This includes additional member requests for early retirement quotations, claims for ill-health benefits and transfer value packs.

In addition to the pressure on delivery, there is of course an additional cost. As costs vary from £100 to £250 per administrative activity — depending on the third-party administrator and the specific activity — a 100-employee redundancy exercise could easily cost £40,000.

Where trustees have negotiated fixed fees for administration services, the costs of redundancy exercises are normally not included. Therefore, trustees and sponsors could be facing serious additional costs over the coming months.

All of this comes at a time when TPAs are moving to a new service delivery model.

Having largely successfully negotiated the initial challenges of a move to homeworking, the industry now faces new challenges. Whether it is the need for social distancing in an office, or employees’ desire for more flexible working, it is likely that the new service delivery model for most TPAs will be a hybrid of home and office working.

Ensuring the best service for members

Trustees and TPAs need to work together in a spirit of true partnership. Trustees should accept that their service delivery model will change. They should not stubbornly hanker for the old model, but instead work with their administrators to ensure a robust and excellent service for members.

Trustees should be having pre-emptive discussions now with their TPAs about how to manage extra workloads and additional financial issues. Whether their contract has an activity charge or is truly fixed, there will normally be room for negotiations for ‘exercises’ such as redundancies. Early, open and honest communications will help all parties manage the process.

Trustees should talk to their administrators about how to streamline the process. For example, perhaps quoting transfer values with leaving service statements will reduce queries. Can members be pointed to online self-service solutions? Should some service levels be relaxed to prioritise other, more urgent cases?

Ultimately, if there is likely to be additional work involved, then any additional fee should be agreed beforehand so there are no unexpected surprises. However, this should recognise an additional effort and should translate into extra resources deployed.

As always, our mantra is that early, open discussions between all parties is vital to manage the perfect storm that appears to be approaching at a pace.

This article first appeared in Pensions Expert - https://www.pensions-expert.com/Comment-Analysis/Schemes-must-prepare-for-a-tsunami-of-admin-requests