Admin practice – the missing piece of the benefit specification puzzle?

As Sarah Henderson mentioned in her recent blog, “Why the rules are just the beginning…”, one of the key steps in building a benefit specification for a bulk annuity policy is adding in admin practice.

So why is admin practice so important?

Unfortunately, the scheme rules are very rarely a “one stop shop” providing all the information needed to prepare your benefit specification.

In most cases, the scheme rules are just a starting point. It is only when they are considered alongside current admin practices that it is possible to get a full picture of the benefits the scheme actually provides.

So where can admin input help?

• Gaps in the rules – there may be areas where the scheme rules are silent as to how certain benefits should be paid. Input from the scheme’s admin team on how these benefits are currently administered can therefore be used to fill in the gaps.
• Ambiguities – there may also be ambiguities in the scheme rules as to how certain benefits should be provided. In these cases, input from the scheme’s admin team on current administrative practice can help in finding a reasonable interpretation of the relevant rules taking into account the way these benefits have been administered in the past.
• Transfers-in / special terms – the benefits payable to certain categories of members (for example, members who have transferred in or members with special terms) may not be documented in the scheme’s governing documentation at all. In these cases, admin records can be a helpful (and often the only) source of information on the benefits to be provided to these members.
• Early identification of discrepancies between rules and admin practice – collaboration between the scheme’s admin team and legal advisers can also help to flush out any areas where there are discrepancies between the scheme rules and current admin practice. This will enable any issues to be resolved before buy-out and will avoid a situation further down the line where you’ve not secured what you’d thought you had.

What if there are still gaps?

Unfortunately, there may be a limit to how far admin input can go on filling in some gaps.  Historic schemes, in particular, often have patchy records and certain data just isn’t available.

So, what should trustees faced with this situation do? Firstly, don’t worry – it is important to remember that you can only work with what you’ve got. Secondly, trustees should work with their legal advisers to see if a more pragmatic solution can be reached.

To try and avoid any nasty surprises, it is always worth trustees getting an idea of the quality of scheme records (and how they are stored) at the start of a benefit specification exercise as this will have an impact on how long (and how difficult) the benefit specification exercise is likely to be.

Should trustees seek protection from the admin team?

Finally, a significant proportion of the final benefit specification is likely to be based on input from the scheme’s admin team. Trustees may wish, therefore, to have a discussion with their legal advisers around obtaining a letter of comfort from the scheme administrator to support the warranties on the benefit specification that are given by the trustees in the bulk annuity contract.

< Back to blog