When is the right time to outsource? Like most things in life, the answer to this question is, ‘it depends’.
The right time for one employer to outsource its super fund activities might not be the right time for your organisation. It is also important to pick the right solution at the right time.
The outsourcing solutions available are many and varied, but include stand-alone administration outsourcing, implemented investment outsourcing, outsourcing of trusteeship, as well as full outsourcing to master trusts or industry funds. There is no ‘one solution fits all’. However, there are three common indicators we use when talking with clients about outsourcing: time, cost and flexibility.
Time
How much time are you or your staff spending on superannuation? Could these resources be better used in other areas?
If the opportunity and time cost of administrating the fund is outweighing the benefits (direct control, branding and employee perceptions of commitment), then it may be time to outsource. Under a master trust, industry fund or approved trustee structure, an employer’s trustee responsibilities, time requirements and legal liabilities are transferred to the provider, thereby minimising their time input. A policy committee is still required to represent members’ interests.
Cost
A survey undertaken by Mercer called The Benefits Outside the Square, found that employees want the following in regard to their superannuation:
n A range of value added services targeted to their needs;
n Flexibility to change at member discretion;
n Self-service in real time;
n Professional advice to support decisions.
To satisfy these desires, companies need to invest in new technologies and greater human resources. Employing Internet and interactive voice response technologies, which will provide the more immediate and personal contact members want, will significantly increase costs for stand-alone funds if they want to keep pace.
Alternatively, establishing a call centre with staff on hand to answer questions and give advice to your employees will also be an expensive venture.
If your organisation is not in the position to invest in sophisticated software or increased human capital, outsourcing to a master trust, for instance, which is designed to deliver these services, will substantially cut costs while maintaining employee satisfaction.
Flexibility
Although many solutions don’t offer the same level of benefit design flexibility as a stand-alone fund, they can offer a higher level of investment flexibility. For example, many master trusts offer members upwards of 30 investment choices. To our knowledge, no stand-alone fund or industry fund offers this level of choice. The decision here is to weigh up the importance of having an open benefit design versus a higher level of choice.
It’s not all or nothing
Outsourcing is not an ‘all or nothing affair’. You can take incremental steps towards it, which allow your employees to become comfortable with the solution, the provider and their service style. For example, many organisations run their own trusts and maintain their own trustee boards, yet outsource the administration and record keeping functions or employ an external call centre. Other organisations might outsource the investment function, choosing an experienced organisation from the fund provider’s stable.
Before you make the leap
Before you make any decisions to change the format of your fund, it’s important to acknowledge that moving to a higher degree of outsourcing via a master trust or industry fund is a large process that could take up to four months to complete. This changeover will need to be managed in a sensitive manner and will require complete employee buy-in. You will need to understand the stages of the process and ensure that assets are transferred efficiently and on time. Conversely, the new provider will need to understand the prior arrangement, if it is to replicate the previous benefits.
Choosing a master trust
Because the superannuation industry has boomed over recent years, there are several new players. The following points serve as a checklist to ensure providers will be able to supply you with benefits that exceed what you set out to achieve:
n Does the provider have the experience and ability to administer the fund’s benefit design?
n Does the provider have a demonstrable track record in not only managing the ongoing operation but also the sensitive transition stage?
n What level of service will be provided both to the members as well as the employers’ human resources community?
n Are employees required to invest a percentage of monies in specific options? If so, how does this impact on their ability to make their own choices?
n Will employees receive the level of support they want/need to make investment choices?
n Does the new fund provider offer a number of educational channels to inform employees about their choices, such as on-site seminars, booklets, web sites and call centres?
n Does the provider have the capacity to keep up with emerging technologies around member servicing?
In conclusion
Time, cost and levels of flexibility will all impact on an organisation’s decision to outsource and to what degree. However, there are also other factors to consider, such as your organisation’s ability to sensitively and effectively manage the transition. If you do choose to outsource, it is very important that you select a provider who can offer you the best investment choices for your employees as well as the best support to help them make these decisions.
— Stephen Supple is national business development manager at Mercer HR Consulting.
