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Brexit impact tough to measure ‐ pension administrators

The impact of Brexit on the UK pension administration market is uncertain, with some expecting limited disruption while others anticipate greater ramifications.

Pension specialist Trafalgar House argues that Brexit could generate labour shortages for pension administrators and ultimately prompt them to move operations offshore.

More than half of the financial services industry has brought operations back to the UK in recent years amid service complaints and shifting costs, 2017 research by international recruiter Robert Half shows.

But Britain’s departure from the European Union could potentially reverse the trend.

“We’re finding it relatively difficult to attract new people into the industry, and a number of highly experienced people are exiting the industry,” Daniel Taylor, client director at Trafalgar House, told Global Investor.

“One forecast is that the arrival of Brexit could lead to further labour shortages in the sector, which means that that trend might be reversed and the outsourcers may have to look to more offshoring,” he said in reference to pensions administrators, adding that impact would be short‐term while the market adjusts.

Third‐party administration providers take care of day‐to‐day operational tasks for pension funds, such as holding membership records and handling transfers and contributions.

Others in the industry, however, see Brexit causing little disruption to their business or affecting only a parcel of pension administration.

To Phil Farrell, a partner at full‐spectrum pension services firm Quantum Advisory, Brexit is “all a big unknown”, but he expects his business to remain largely unaffected.

“By way of example, in the sense of Quantum – we don’t offshore anything. And I think that we would not have an issue in resourcing if you looked at the potentially kind of worst‐case scenario in terms of Brexit, in terms of staffing levels,” Farrell told Global Investor.

“Maybe the larger third‐party administrators could feel an impact in terms of availability of staff because of the way that they run their business model,” he said, adding that IT would perhaps be the most vulnerable area in the industry.
Rather than affecting providers directly, Brexit could be a larger source of concern for their clientele.

For instance, employers’ ability to support their pension schemes could be undermined if their business suffers due to Britain’s departure, endangering
the scheme’s funding.

“The biggest risk to us in what we do is the impact of Brexit on our clients rather than the impact on us,” Farrell said.

Fergus D Clarke, executive director at the Pension Administration Standards Association (PASA), argues that Brexit will have “limited impact” if administrators have highly automated domestic operations.

“In PASA’s view, if you have a highly automated process with a good‐quality contact environment which is manned by individuals who are pensions‐literate and highly skilled in pensions administration, then actually the level of customer service that you’re able to provide to the members of those schemes is probably much better,” he said.

But providers with operations in Europe or farther afield are likely more worried about the implications of Brexit for their business models, Clarke said.

PASA does not hold data on the number of EU nationals working in pensions administration.

But, from a general perspective, Clarke thinks that any restriction to the movement of labour would likely have an impact.

“Clearly, if there is a reduction in the inflow of new labour into our market, then that’s going to have an effect, and employers will have to look elsewhere in order to fill those gaps or re‐train and re‐skill their existing workforce.”