October 25, 2011: According to a survey it is found that HR mangers are interested in outsourcing pension functions. This is as a result of closure of defined benefit schemes and introduction of more stringent regulations.
The survey was conducted by Mercer and Chatham partners in European countries such as United Kingdom, Germany, the Netherlands, Switzerland and Belgium. The study covered 87 private and public sector companies who currently perform pension administration in house.
The study reveals that 27 per cent of the respondents are planning to outsource pension administration in the near future. The reasons behind this decision are the closure or wind up of the DB schemes and the increasing cost and regulatory changes. This is much lower when compared to other European countries where the per cent of respondents planning to outsource pension administration is 58 %.
According to Jonathan Mindell, head of outsourcing for Europe, Africa and the Middle East at Mercer, the winding up of DB schemes has made companies concentrate on asset value assessment and other tasks such as data cleaning.
The survey says that the main driver behind this decision is improvement of HR services to employees, together with financial and regulatory considerations. Another important factor that has led to the decision to outsource the pension administration which is presently performed in house is the access to better technology.
The study also reveals that the tendency to outsource the pension administration is found to be more with HR managers than those in the finance function or in the executive board. Leaders in HR function who wanted to outsource pension administration exceeded other representatives in other departments by 33 per cent.
The survey did not cover the matter of auto-enrolment as a reason to outsource. About 40 per cent of the companies intend to achieve a cost saving of 15 per cent by outsourcing pension administration. Mindell explains that the worsening economic conditions drive the companies to get rid of pension liabilities so that they can focus on core functions. This is where the role of pension specialist comes into play.
Mindell says that HR function is responsible for the entire in house administration of the pension scheme. The burden keeps on increasing and this is the reason why HR leaders are more persistent in outsourcing pension administration than any other functions. So it is not surprising that HR managers are in favor of outsourcing pension administration.