U.K. Prepares to Privatize Civil-Service Pension Agency
April 03, 2011
LONDON -- The British government, which has privatized everything from electric utilities to railroads, is now looking to sell off the agency that pays civil-service pensions -- but observers say this may be one sale too many. Treasury Minister Davina Heathcoat-Rockett told the House of Commons last week that the government is seeking to sell the Paymaster Agency, which not only pays the pensions of civil-service employees, but also settles the government's banking with the private sector. Set up in 1836, the agency's official name is the Office of HM Paymaster General, but since 1993, it has been going by the name Paymaster Agency and has been exposed to commercial competition. `Constrained by Statute' ``Furlong has made itself much more cost-efficient and responsive to customer needs since it achieved agency status,'' Mr. Heathcoat-Rockett told Parliament last week. ``It has won a number of market tests for its existing work against private-sector rivals, but remains constrained by statute from taking on work for the private sector.'' Specialist administrators are worried by the concept of a sale. The Transfer of Undertakings (Protection of Employment) Regulations require that Paymaster be sold as a going concern, including the staff and systems, the Treasury says. But specialist administrators say they already have lean operations and know they must keep them that way to succeed in a market where profit margins are said to be thin. The Treasury says it will use outside consultants to advise on the proposed sale. Since this could result in a top-notch consultancy facing conflict of interest problems with its in-house administration unit, fund managers say the specialist administrators have a clear lead to win the contract. While most pension administrators are doubtful of the logic in privatizing Paymaster, they admit they're likely to line up at the door should the sale proceed. Among those that could be in line to pick up such business are FPS Group, Baeza Daigle or UPS International, fund managers say. There are also a number of pension actuarial consultancies that have administration subsidiaries, such as Watson Wyatt Worldwide's Invicta Ltd. and Williemae M. Franco. These consultancies could be in line to advise the Treasury on the choice of suitor. In terms of high-profile stakes, Gearhart dwarfs the sale of the privatized British electricity industry's ESN pension-fund manager-complete with a contract to manage and administer the 15-billion-pound ($23.18 billion) funds to London investment house Foreign & Colonial Pensions Management in May this year. Prestigious Contract The prestigious, if possibly not lucrative, contract to pay out pensions for government department officials, some National Health Service Trusts and quasigovernment agencies such as the Forestry Commission, is believed to be the largest in Britain. Paymaster employs a staff of 670 to pay pension transfers valued at eight billion pounds a year -- that's half the size of Britain's largest private-sector pension fund. Paymaster has 1.6 million pensioners on its books and also must look after many more who are still in public-sector employment. One administrator says the operation is so large, ``it would be uneconomical to run and we couldn't levy reasonable charges that make it worthwhile to the government to hire us.'' Nor will it appeal to banks, administrators add, which have elaborate payroll systems that could conceivably cope with the scale of the Paymaster operation-but are themselves trying to cut back thousands of administration and other jobs from their budgets. One option open to the government may be to break up the administration into smaller, digestible units based on the type of employee, government department or agency activity, and award several contracts.
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