Implementing the monthly payment process
Laura Russell, Rothesay
Whether a trustee has chosen to secure the future of a scheme with a buy-in or a buy-out, for both types of transaction there will be a buy-in phase and payments to members are paid via the trustee (i.e. the insurer will make payment to the trustee who will then pay the member). The insurer and administrator will need to work together to ensure that the new processes required under the bulk annuity contract do not impact on the member experience.
In advance of signing a bulk annuity contract with Rothesay, and to ensure the implementation process is seamless, our transition team will arrange a visit to the trustee’s administrator to explain how the new arrangement will impact on their current processes and what changes will be required. This meeting will ensure that the administrator is comfortable with the processes that are about to be agreed in the policy documentation and that they have the ability to implement these processes in practice.
The monthly process is often more complex that it looks on first glance and each scheme works differently, however the objective is the same for them all – making sure members are paid on time!
During the buy-in phase there are number of different ways that Rothesay may agree to make payment to the trustee account each month;
- Fixed payroll – a fixed monthly payment amount has been agreed in the policy documentation either for the monthly payroll alone, or for the payroll and the estimated commutation lump sums (“ELS”). This is typically only used for a year or two after signing to simplify the implementation.
- Pull payroll – The trustee's administrator supplies Rothesay’s administration team with a payroll extract each month. Rothesay arranges monthly payment amount in accordance with that extract. The trustee “pulls” what they need.
- Push payroll – Rothesay calculates the monthly payment amount based on the insured population and the reported movements for the month. The trustee is “pushed” what they are owed under the contract.
In order to calculate the correct payment to make each month Rothesay will require regular information from the scheme’s administrators;
- Movement reporting – The trustee's administrator will provide details of member status changes made in the previous month, in a prescribed format, ahead of the monthly payment date each month. Existence checking will be required on a monthly basis albeit on an automated basis via tracing agencies.
- Lump sums – in each scenario above (except where ELS amount has been fixed), the trustee administrator supplies a list of lump sum amounts due for payment by the trustee that month along with pdf copies of settlement papers (unless agreed otherwise). Rothesay arranges payment of the lump sums having checked the application of the correct factors.
- Payroll adjustments – the trustee administrator will report on any payments returned to the trustee account relating overpayments (often related to late notification of death), returned BACS and any payments made outside of the payroll (eg. back payments being made to any suspended members who need reinstating) to Rothesay’s administration team.
- Cash flow reconciliation – in the pull payroll scenario, Rothesay will complete a reconciliation of payments made to the trustee during the buy-in period, and calculate a true-up adjustment.
The monthly payment date is agreed in the policy documentation, and is usually 2-3 business days ahead of the date the scheme members are paid on by the trustee.
There is often a cash flow reconciliation of the payments due/paid at the end of a specified period (usually following receipt of a cleansed data file on completion of an agreed list of data cleanse activities) particularly where the fixed or pull payroll methods have been operating whilst the trustee administrator completes data cleanse activities.
Rothesay uses a secure electronic file transfer site (SEFT) to send and receive reporting information between ourselves, our administration team and the trustee administrator.
Our administration team, overseen by the Rothesay transition manager, will review and approve payment requests and movement reports.
The Rothesay administration team will also check that data used in any commutation lump sum requests matches the original or updated cleansed data file supplied by the trustee, and will raise any immediate questions with the trustee’s administrator.
Our administration team will work closely with the trustee’s administrator to resolve any discrepancies and ensure that payments are made on time each month.
Movement queries with no immediate payment impact are collated into a query log and sent to the trustee administrator to investigate and respond before the next month’s reporting period.
Although the format and frequency of the monthly process will have been agreed in the policy documentation, it’s the relationship built between Rothesay, and the trustee, including both parties’ administration teams, that will be key to providing a smooth ongoing payroll service to members throughout the buy-in and eventual buy-out.
About the author
Laura joined Rothesay in 2016 as a Transitions Manager and has over 20 years’ experience managing customer and client relationships in the pensions industry. She has previously held operational management roles at Aegon and SAUL Trustee Company.