Tuesday, 16 December 2008

Xafinity and public sector pensions

(By Richard Holway) Last week I went to see Tim Robinson, CEO of Xafinity. I will do a full profile on them but, unfortunately, they have managed to hit the headlines before I could put pen to paper.

Public sector pension overpayment

As you might have read today (this quote from the BBC) ”The pensions of tens of thousands of retired NHS, armed services and other public sector staff have been overpaid for decades, the government has said. About 5% of public sector pensioners are affected by overpayments worth "tens of millions" of pounds”. In this, and most other media articles, Xafinity is quoted as the company responsible for processing those payments.

Today, the Minister responsible ,Liam Byrne, made a statement to the House in which he said “To enable the correct pension increases to be applied, pension scheme administrators need accurate GMP information derived from the individual’s National Insurance contribution record. Our investigations have revealed that in 95% of cases this information is correctly recorded. But, in some cases it is not. In those cases schemes have paid the annual increase on the full pension each year instead of on an amount adjusted to reflect the GMP entitlement”

In other words, Xafinity can only process the pensions based on the data it is given. In this case that input data was wrong. Xafinity was not only not responsible for any part of the production of that input data but would have had no way of telling if it was accurate or not.

Xafinity Paymaster stressed in a statement this afternoon that they were not at fault. They pointed out that they were “now working very closely with its public sector clients to help those schemes identify GMP data issues and correct future pension payments as quickly as possible. Accurate and timely pension payments are incredibly important to pensioners, so every effort is being made to sort the problem out”.

I have to say that I have sympathy with Xafinity over this issue. Like several other cases recently, it is so easy for the media to quote, and therefore blame by association, the BPO processor. Regardless of any subsequent statements made, by then the reputational damage has already been done.

Xafinity pedigree

In the case of Xafinity that would be particularly irksome given their pedigree. Xafinity could claim to be 172 years old if you measure from the foundation of the Office of the HM Paymaster in 1836 when it started paying retirement pensions to the military. It took on the administration of NHS pensions in 1948 and is now responsible for paying over 2m pensions in both the public and private sectors.

In 1998 Paymaster was acquired by Hogg Robinson BCS which was, in turn, acquired by PE firm, Duke Street in 2005 and became Xafinity in 2006.

Xafinity is now one of the largest pensions administrators in the UK (Capita is the #1), employs around 1450 in 11 locations around the UK and has annual revenues of around £127m (70% private sector, 30% public sector) and EBITDA of around £25m. Its three main activities are:

-Xafinity Consulting (c£35m) – Pensions and actuarial consultancy
-Xafinity Paymaster (c£78m) - Pensions BPO
-Xafinity Claybrook (c£14m) – Pensions admin, payroll and actuarial valuation software.

Robinson told me that Xafinity ‘continues to trade well’ and he expects continued growth in the coming year. Xafinity recently announced that it had won a contract to provide pension administration to over 20,000 members of the Thales UK pension scheme.

We will do a more detailed and considered review of Xafinity in the New Year.

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