The trustees of the Rio Tinto defined contribution scheme have swapped both their administrator and their platform provider for a single firm, citing value for members. Will other schemes follow?

 

DC has long been the poor relation of defined benefit schemes, while administration has often been the same to investments. But employers are increasingly paying attention to the value their DC members receive as auto-enrolment and the growth of DC master trusts have focused regulatory attention, with the Pensions Regulator planning to shift its focus from DB to DC as outlined in its 15-year corporate strategy. 

 

The DC scheme of global mining company Rio Tinto is also aiming to improve its offering to members. Last November, it moved administration and investments to Fidelity, dropping administrators Willis Towers Watson and provider Aegon in the process. 

 

The scheme told members: “The trustee believes that the change in provider will deliver better value for members as Fidelity offers a market leading retirement service with enhanced interactive tools and modellers to help you better plan for your retirement.” 

 

As part of the changeover, the trustees are also making changes to the two lifestyle strategies, with the new “Rio Tinto Income Drawdown Investment Strategy” replacing the current “Income Drawdown Lifestyle” option and using this as the default option. Similarly, the new “Rio Tinto Annuity Investment Strategy” will replace the current “Annuity Lifestyle” option. The trustees and Fidelity have agreed to cover any transition costs. 

 

 

Whether bundling administration and investments or keeping them ‘unbundled’ is preferable is a longstanding debate. 

 

For some, bringing admin and investments together under one roof addresses one of the key issues in DC – knowing how many units a specific member has at any one point in time. 

 

“The advantage of having admin and investments in one place is hopefully that they know what’s going on, and not have this potential disconnect with the investment manager saying, ‘You hold this many units’ and the administrator saying, ‘You only hold this many units’,” said Michael Clark, managing director of professional trustee firm CBC Pension Services. 

 

“DC is all about follow the money,” he said, adding: “When something goes wrong in DC, it is horrible to try to correct any errors... to go back, reconcile, reprice all the units.” 

 

Having a single provider also avoids the potential situation where one party blames the other party for mistakes, he noted. 

 

Despite these advantages, combining DC administration and investments is “not as common as it ought to be”, said Clark. 

 

 

A big operational benefit of consolidating the administration and investment platform used to be that it made investment trade processing more efficient, said Daniel Taylor, director at third-party administrator Trafalgar House. “Bundling could speed up buys and sells, reducing out of market periods,” he explained. 

 

However, with the advent and widespread adoption of straight through processing, most administration platforms are able to exchange data directly with most fund managers, therefore matching the operational efficiencies of bundled services, Taylor argued. 

  

“Sadly, one of the biggest drivers today is cost transfer. Under a decoupled administration model, fees are commonly paid for by the sponsor, whereas under a bundled model, costs are passed on to members through annual management charges,” he said. 

  

Whilst many smaller schemes are moving to the bundled model, many larger schemes are reluctant to do it, he believes, preferring instead to have more direct influence on the scheme’s administration. 

 

“Larger schemes often want to retain more control and tailoring over communications, company interfaces and member support, which can all be much better delivered by using specialist administrators,” he maintained.