If Covid-19 has highlighted one thing, it's the need for businesses to accelerate the review of their operational processes and drive efficiencies to meet rapidly changing customer needs and expectations. This is especially true in the pensions industry, as pressure increases on Administrators to deliver more with less, they are having to evaluate and take greater control of every part of their process.
Historically, focus has been on key operational procedures that deliver instantly noticeable benefits for the majority of Scheme Members.
However, there is now a growing requirement to take a much closer look at the issues affecting a smaller, often overlooked group, Globally Located Scheme Members.
While UK pensioners located outside the UK only total 600,000 or 5% of the total UK pension fund population, in monetary terms this still equates to approximately £3.6 billion worth of payments paid overseas per year.
In conjunction with Pensions Administration expert, Andrew Marson, Ebury has reviewed the sector and objectively evaluated current processes in delivering value to global scheme members.
Andrew comments: Cost transparency is a hugely important topic in the pensions sector and pension funds take cost collection very seriously. To me, cost transparency is another way of saying maximise income in retirement, which overlaps to another important topic of member engagement.
Whilst the population of overseas pensioners at a scheme level is a minority, collectively it is big business as this report highlights. It is clear to see how we can fall into a trap of 'that's just how it is'. Members deserve the best possible outcomes from their retirement benefits. I would encourage all schemes to review the foreign exchange costs to overseas pensioner members to satisfy themselves it is fair value for their hard-earned savings.'
Ebury has spoken extensively with administrators and pension funds, and discovered that in many cases, the same operational procedures to manage payments to international Scheme Members have been in place for in excess of 10 years. More worrying is the lack of input and transparency provided by banks and financial institutions to Administrators about the processing of payments to their international Scheme Members.
This group of pensioners face the risk of losing a chunk of their money from their monthly pension due to excessive payment fee charges and uncompetitive foreign exchange rates. Cumulative deductions can amount to as much as 10% of the total payment, meaning pensioners face additional financial stress through not receiving best value for their pension payments on an ongoing basis.
The process of paying Global Scheme Members does require more focus, as there are additional steps involved, such as ensuring that Global Scheme Members international bank account details are correct. Then there's the process of managing the currency conversion into the Scheme Members local currency which needs to be transparent and regularly monitored to ensure continued value for money.
Banks and financial institutions have provided minimal options to Administrators by providing a solution of sorts, restricting Administrators' ability to evaluate payment procedures as part of their control framework.
A complex situation for administrators
• Due to the increased complexity of delivering a payment to overseas beneficiaries, the process is usually outsourced and managed by banks or other financial service providers.
• Most Pension Administrators' involvement in this process is usually limited to managing and providing Scheme Members banking data to their bank or financial service provider and in some cases, authorising the transactions to release the payments.
• Pension Administrators usually have limited access to banking/payment platforms, affecting their ability to live check and verify bank data and other important information such as exchange rates.
As the industry moves towards increased accountability and transparency, there is a need for greater involvement and understanding of the full end to end process to help uphold integrity and ensure the best outcomes for scheme members'.
This raises the question of how involved Administrators have to be in managing this process? We would like to understand your experience of making international payments to overseas pensioners and welcome feedback and improvement suggestions from both an Administrator's, Trustees and Scheme Member perspective.
Delivering the best outcome for Scheme Members
There are 3 key factors determining the outcome for global Scheme Member payments:
1. Upfront bank account validation
It is critical that bank account details are verified prior to any payments being made.
From our discussions, we understand this can be a protracted and manual process taking anything up to 2 weeks with some banks. If this process is not completed, there is an increased risk of payments being delayed or not even reaching the Scheme Member, causing both emotional and financial distress alongside creating significant case work for the Administrator to rectify.
With technology now available to digitise member verification, payment upload and authorisation processes, resources are available for Administrators to have greater control and visibility with less manual intervention. The experience and benefits for Global Scheme Members and long run cost savings from eAdmin processes justify the investment, as do improved service, security and engagement. There are also simple checks to follow as part of the existing payment process:
2. Method of payment / payment fees
Choosing the optimal payment method determines the value received by the pensioner. The majority of pension payments are made via the SWIFT network (Society for Worldwide Interbank Financial Telecommunication), which is the financial messaging network connecting banks globally. Payments sent via this method can incur fee deductions, particularly if the payment is routed via multiple banks to more exotic locations. These deductions are taken from the original amount sent, resulting in the Scheme Member receiving less.
To alleviate the likelihood of fees being deducted, Administrators may have to absorb or pass through higher payment fees to the Scheme Member in order to ensure the full amount is received. An alternative method is the use of local payment schemes with funds sent directly to in-country bank accounts, similar to Bacs in the UK, SEPA in Europe or ACH in the USA.
This removes the risk of fee deductions and payments being 'clipped' en-route by processing banks. It's important the local payments option is made available to Pension Administrators to ensure best value for pension scheme members.
3. Foreign exchange
Currency exchange rates fluctuate constantly and with added uncertainty caused by global events such as Covid-19, greater disparity between currency values are a reality.
Currency exchange rates significantly impact the amount pensioners receive in their local currency and left unchecked provide the opportunity for uncompetitive rates to be applied.
Having transparency of exchange rates empowers Pension Administrators to ensure they remain competitive and maximum value is delivered to Scheme Members. Having this information to hand also enables Administrators discuss payment options with their service providers to protect Scheme Members against the impact of currency volatility.
Bloomberg GBP / USD Chart (as of 9th Dec 2020 - Refinitiv Datastream)
Greater engagement and availability of transaction data from banks and payment service providers will assist Administrators and ultimately Trustees in protecting Scheme Member value and the delivery of better financial outcomes while upholding standards of integrity across the sector
From the perspective of Administrators and ultimately Trustees - having a payments processor who consistently delivers comprehensive support, both pre and post payment, is key to a successful partnership and the on-time, in-full delivery of payments for Global Scheme Members.
Andrew Marson: Pensions Administration Consultancy & Leadership
Helping Heads of Finance and Pensions support their Pension Administration teams to provide a high-quality, valued service to pension scheme members.
Andrew has been in the pensions industry for over 30 years with 25 of those helping Pensions Administration teams. That's the area he loves most, helping to develop people so they realise their potential, make effective improvement to processes and systems, and build a financially sustainable service that the members value.
Over the years, he's helped over 1,500 colleagues, 3,100 clients and 3 million customers. Pensions Administration is tough, but is also rewarding. Nothing pleases Andrew more than helping people improve and achieve, whether that's from leading a team whose service is in distress to high performance, or a colleague who learns, grows and experiences success.
