The Northern Foods Pension Scheme has become the latest to outsource a pensions manager role, at the same time shifting its assets to a fiduciary manager as it aims for a first buy-in. With defined benefit schemes maturing, are in-house pensions managers a dying breed? 

 

Northern Foods has employed Peter Croskin as group pensions manager since he joined the food manufacturer in the late 1980s. Croskin had provided governance services for the relatively mature pension scheme over many years but reached a careful decision to scale back, said trustee chair Chris Martin from trustee firm Independent Governance Group. Around the same time, the trustees and the employer had agreed a long-term funding objective for the legacy scheme. 

 

“As part of that long-term funding objective, we wanted to put in place a governance structure that would support all sorts of activity around possibly taking opportunities in the risk transfer and buy-in market, and we wanted to have a... governance team in place that would be supportive of that. Perhaps a wider, deeper governance team,” Martin said. 

 

The funding level of the scheme has improved since 2021, when it stood at 79% with about £1.3bn in assets, and Martin said a first buy-in is the goal: “We're talking about reducing the level of risk in the investment strategy, planning for the first buy-in and hopefully taking a sequence of steps to, long-term, get to risk settlement.” 

 

To deliver governance services for this, the scheme chose XPS Pensions Services after a request for proposal and selection process, placing emphasis on whether the work is allocated to several people and if they had experience of comparable situations and similar-sized schemes. 

 

Most importantly, the team had to have “the ability to scale up at short notice”, said Martin, for when a risk transfer opportunity arises.  

 

Pricing was also a factor, with the scheme footing the bill at Northern Foods. Martin said the cost for the external services was “probably higher than in-house but then partly when you’re outsourcing, you are also outsourcing the risk”. 

 

He says most companies and schemes are outsourcing the function when a pensions manager steps down. Key man risk is an issue, but most of all, the dramatically higher funding levels seen in recent months have brought defined benefit schemes that target buyout closer to that goal, he noted: “So does it fit to have somebody else come into a role that might only last five to 10 years?” 

 

The investments meanwhile were outsourced to fiduciary manager WTW in September last year, “having completed a full review of providers in this area”, the scheme told members. It said it would transfer all the investment work that had previously been completed by Croskin and two others to WTW. 

 

Stuart Walters, a trustee director at Vidett and former pensions manager at logistics firm Wincanton, says the trend towards outsourcing pensions managers has existed for at least 10 years as DB schemes become legacy arrangements and defined contribution schemes tend to be run by master trusts or insurance providers. 

 

Walters says from his time as a pensions manager, “from an operational perspective, one thing that sticks in my mind was all the investment paperwork needed to process transactions and capital calls”, each of which needed two signatures. “We outsourced that to Mercer,” he notes, also in a fiduciary manager mandate. “One of the key drivers was to bring operational efficiency allowing a greater focus on strategy." 

 

He said the operational aspects of the DB scheme were transferred to the finance function, and those of the DC arrangement to the HR and reward team. “DC pensions is an integral part of a financial wellbeing strategy helping create an employee-centric culture, is less complex - it’s a savings account at the end of the day - and can easily sit with HR/reward teams,” he notes. 

 

Overall, the pensions manager role varies widely between companies, however, with some taking care mainly of operational aspects, while others set the strategic direction of the scheme. This variety is reflected in the reward; Walters says he has seen companies advertising from between £60,000 to as high as £130,000 before high inflation started, depending on the nature and complexity of the role. 

 

Gillian Graham, a client director at Vidett, says she is seeing major changes in the way the larger DB schemes are run – those that typically had a pensions manager, including the move to fiduciary management and sole trustees, as well as DC schemes being handed to master trusts. The increase in governance requirements over the past few years has also been considered to be a burden for in-house teams, she says.  

 

However, there is also competition for talent as trustee firms are expanding, she says: “There is currently a lot of demand for pensions managers with good experience as professional trustee firms are building up their governance teams, and so I wouldn’t be surprised if companies are finding it hard to recruit.” 

 

Impartiality can mean outsourced providers are well placed to take on the pensions manager role, as this is typically employed directly by the sponsor. 

 

However, there are downsides to outsourcing. Fizza Qasim, a senior trustee consultant at Vidett, says that “aside from the obvious factor of increased cost, in my experience the main downsides of outsourcing are the loss of historic scheme knowledge, and the direct connection with scheme members”. 

 

Graham says the knowledge and experience that is often held by in-house teams is invaluable, particularly as these teams are often familiar with scheme 'quirks'.  

 

“As schemes mature and look towards ‘end goal’ options, we as trustees would like complete confidence that all knowledge is transferred when schemes outsource services. However, practically from my previous role, I know this is not always the case, as in particular smaller groups where members have individual agreements can be transitioned incorrectly,” she explains. 

 

The human aspect – having someone internally to speak to – should also not be underestimated.  

 

“I have found that members sometimes prefer the familiarity of in-house teams,” says Graham, although it depends on the industry the company is part of, and on membership profile. 

 

“However, it is a challenge particularly for third-party administrators and trustees to ensure that members receive good service and effective communication all as part of the member experience,” she adds. 

 

How do in-house and outsourced pensions managers compare?