From the point of view of the supplier, with the competitive pressures forcing down charges and revenue, the sector itself doesn’t seem so attractive either. However, benefits administration is still very much in demand, and the sector will need to change significantly to meet the developing service expectations of the marketplace.
Traditionally, outsourcing providers have been able to charge large sums to relieve their clients of the administrative challenge of operating their pension or non-pension benefit programmes. Organisations felt out of their depth with the volume of processing, were unable to secure suitable technology and believed they could not cope with the expected number of queries from employees.
However, over the last few years, new technology providers have entered the marketplace and the choices facing clients have matured into a set of options, ranging from traditional outsourcing, through application service providers and hosting, to in-house solutions. This range of solutions has come about due to advances in benefits administration technology. The impact has been most felt in the non-pension benefits administration marketplace, but the pension benefit marketplace is beginning to feel the pressure as well, partly accelerated by the recent economic turmoil.
The latest technologies can deliver extensive improvements. Touch-free administration, straight-through processing and real-time integration with HR and payroll systems can reduce the amount of human involvement, speed up the process and minimise errors. When combined with employee self-service applications, even fewer people are needed to administer benefits.
These improvements eliminate two of the main traditional drivers for outsourcing: administrative complexity and query volume. For example, in one UK organisation using this new technology, it now takes only one part-time staff member to administer the arrangements for some 10,000 employees. Previously, it took in the region of two to three full-time staff.
Handling employee queries and requests used to be a huge drain on resources. Self-service technologies allow the employee to not only execute required transactions, but also to educate themselves through online total pension or total reward statements, or through more detailed tax calculators and wealth management planning tools – correspondingly reducing the level of HR assistance required. The fact that any remaining interactions are directly between the employee and the company’s pension or other benefits professionals, and not via a third party call centre, may be seen as an additional advantage.
What hope for outsourcers?
The arrival of touch-free administration and extensive user self-service is not eliminating the demand for outsourcing, but rather leading to a new model for that outsourcing. The power and hence increased complexity of the new technologies is both their strength and their weakness.
Adopting the new technology requires financial resources to acquire it and competent and cost-effective IT resources to maintain it. Outsourcing providers who adopt these new technologies can handle this new challenge while leaving them in full control of their benefits management.
The core technology service provision will probably continue to be supplemented with other services. For example, the extent to which employees are able and willing to access the self-service functionality will affect the extent to which an outsourcing provider will need to supplement its service with an employee call centre to handle queries. Some companies whose employees have no online access may require it as an add-on capability for some time to come.
The way ahead
The outsourcing of employee benefits is not only a good idea, but a necessary component in the delivery of flexible benefits today.
More broadly, traditional outsourcers are beginning to see competition from new entrants who are looking to these new technologies to deliver lower cost, fully integrated benefits administration solutions.
Looking further ahead, the complete provision of pension and non-pension benefit administration is going to be an attractive target for fund management and life insurance companies with the cash resources and which serve the defined contribution pension marketplace.
Market expectations
■ Demand for more system integration and straight-through processing
■ Move towards enabling employees to see their current total reward and their current/projected total wealth
■ Requirement for improved self-service employee and management functionality
■ Capability to integrate new systems to express company branding or meet usability requirements, both of which may vary from one business unit to another
James Markham is managing director of SBC Systems
