New research from Aon Consulting, a pension, benefits and human resources consulting firm, has found that the single most important driver for outsourcing pension scheme administration was the need for businesses to focus on their core competencies rather than their pension funds, with a fifth citing this as their primary motivation.
The finding goes against the common assertion that controlling costs is the primary motivation behind the decision to outsource.
Aon surveyed more than 100 senior executives responsible for DB scheme arrangements in the UK. Over two thirds of employers have outsourced their pension administration for defined benefit (DB) schemes, according to Aon Consulting.
For those employers who offered a defined contribution (DC) scheme alongside their DB arrangements, just 15% retained both DB and DC scheme administration in-house, 12% retained in-house administration for DB but outsourced their DC schemes, and a small proportion of about 4% administered their DC schemes in-house whilst outsourcing DB.
Other reasons cited for outsourcing were the lack of in-house resources, lack of appropriate expertise and the need to control cost.
Stuart Heatley, managing director of administration at Aon, said: The results suggest that third-party administration continues to be an attractive path for many schemes. It is clear that financial benefits can be gained through appointing a third-party administrator (TPA).
However, it is the non-financial benefits a TPA can bring that are arguably the most important. The decision to outsource shouldn’t simply be viewed as a cost cutting exercise but as a way of improving the service offered to scheme members.