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Wednesday 16 October 2019

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The life of an Irish pensions administrator

Written by Dominic Croft
June 2013

Dominic Croft explains the challenges for the Irish administrator today and the need for a robust pensions administration system

There are many challenges facing the administrators of Irish pension funds today. Some of these are perennial issues, such as poor quality of data and lack of full automation of calculations; particularly for DB schemes. Other challenges include the constant need to keep up to date with the pace of change from a legislation perspective and to ensure that their dedicated pensions administration software, where it is used (as it surely should be), remains compliant in the face of these changes and continues to be functionally rich in other areas to enable day-to-day administration tasks to be performed efficiently and effectively.

Need for clean data

Clean data is of paramount importance for every administrator because, without total confidence in the accuracy of what is held, other fundamental processes such as the automation of calculations serve little purpose. Data issues for administrators typically occur with legacy data and, for third party administrators (TPAs), when new schemes are acquired and data is accepted in good faith or when it is known that there are inaccuracies or incomplete information. It is therefore vital for administrators to regularly monitor the state of their data by undertaking frequent data validation exercises so that issues can be readily identified and addressed.

Clean data that is stored in a consistent format on a pensions administration system necessarily means that the life of the administrator is less burdensome than it might otherwise be.

It should not be forgotten that trustees ultimately own the data and so it is their responsibility to put measures in place to ensure it is accurate and held in the most appropriate place; in other words, on a pensions administration platform.

Need for greater automation

For many administrators of Irish pension funds there still remains far too much reliance on spreadsheets and manual intervention when carrying out DB calculations (and sometimes contribution allocations and switches for DC schemes), even when the data is in a good state. This is clearly an inefficient way of working and it naturally means that the likelihood of errors and the potential for paying inaccurate benefits is greatly increased. This is where automating calculations and processes using dedicated pensions software, which is compliant with all the latest legislation, is so very important. P3 Ireland is one such pensions administration product that has been developed to meet the needs of administrators in Ireland. It is owned by Profund Solutions and is widely used by a growing number of Irish TPAs in the administration of their schemes; from DB, DC or hybrid schemes to Personal Retirement Savings Accounts (PRSAs), Approved Minimum Retirement Funds (AMRFs) or Approved Retirement Funds (ARFs).

Where automation is used for DB schemes, there is a tendency for the focus to be on calculations from active status rather than covering the full range of calculations to include those from preserved and retired status.

With the demise of DB schemes that remain open to future accrual, the number of members with preserved DB benefits in Ireland, as in the UK, is now higher for the majority of schemes than the number of active members - and the gap is widening. This means that, in theory, there should be an ever-spiralling demand for non-active calculations and, hence, a greater emphasis on the automation of these calculations.

Quite often the calculation of benefits from preserved status can be more onerous than those from active status. For example, on retirement or death from preserved status there is frequently a need to split out elements of preserved pension because they are revalued at different rates, or to different ages. Alternatively, there may be a need to split out elements of preserved pension because even though they are revalued at the same rate and to the same age, they are increased at different rates once in payment.

On retirement there is also often a requirement for the tax-free lump sum to be commuted from different tranches of pension on a proportionate basis or, depending on the rules of the scheme, from the earliest or latest tranche first. For the administrator to perform these calculations manually is inefficient, time consuming and prone to human error. The apparent lack of appetite to automate across the board does little for the lot of the administrator, particularly where other factors such as service level agreements (SLAs) are a consideration from a quantitative and qualitative perspective.

What else to look for in an administration system

Away from individual calculations, an effective pensions administration platform should additionally enable bulk processes such as benefit statements and pension reviews to be run automatically, thereby making the life of the administrator a happier one. Other features such as the ability to create interfaces to enable the bulk import and export of salary information or other ad-hoc data items are a prerequisite of an effective system as is the ability to produce detailed reports, including those required by statutory bodies. Fully integrated web solutions for members and comprehensive workflow and document management applications for administrators also need to be considered in the context of providing an effective and efficient overall administration service.

Legislation challenges for the Irish administrator

With the ever-increasing changes in legislation it is imperative that administrators have the right platform in place to keep up. As well as being compliant with legislation right now, administrators must have faith that their software provider will continue to ensure their product remains compliant with legislation in the future.

A major legislative challenge for Irish administrators in recent times has been the requirement to produce SORP statements, and for these projections to cater for the introduction of the temporary 0.6 per cent statutory levy. As well as being universally unpopular with those directly impacted from a financial perspective, the levy has not gone down particularly well with administrators who have had to ensure that their pensions administration systems are sufficiently robust and flexible to cater for this statutory charge and can separate it out from any non-statutory charges when producing individual SORP statements.

For the administrator, change, whether it is scheme driven or legislative as in the case of SORP, often means a requirement to create accurate and comprehensive test packs to ensure that the results produced by the software are as expected.

Having absolute confidence in the SORP projection results generated by the software is one thing, but then communicating all of this information to the members creates further headaches for the administrator who can often be faced with an avalanche of queries relating to the various columns of figures and other ad hoc data required to be provided in the individual statements.

Recent legislation surrounding the Finance Act 2013 and the ability to withdraw up to 30 per cent of the value of AVCs has created a fresh round of headaches. Whilst the merits of allowing early access to money put aside for retirement are questionable in many quarters, the position could have been more onerous from the perspective of the administrator had phased withdrawal of AVCs been permitted within the three year window from 27 March 2013.

A further challenge for Irish administrators with regard to the Finance Act 2013 centres on the reporting of AVC withdrawals, whereby the administrator is duty bound to provide to the revenue commissioners within 15 days of the end of each quarter (a) the number of AVC withdrawals (b) the aggregate value of the AVC withdrawals (c) the aggregate tax deducted from the AVC withdrawals.

Outlook for the Irish pensions administrator

It is clear that the challenges facing the administrators of Irish pension funds should not be under-estimated. These challenges can be mitigated by focusing on the need for wholly accurate common and conditional data and greater automation of calculations whilst ensuring other key administration tools and processes are in place. To that end, a robust and flexible pensions administration system that is legislation compliant – and which has a proven track record with a proven software provider – is a necessity.

Dominic Croft is client manager Profund Solutions



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