# **3.2 Record Keeping and Account Management**

Once a person is enrolled into a pension system and making payments, there is a need to keep records for all payments and maintain their account balance (Barr and Diamond, 2009). In Defined Benefit (DB) systems the record keeping can be simpler than Defined Contribution (DC) systems because a DB system is organized around a benefit formula focused on wages and years of service. Even this can be challenging for many countries – particularly those that developed systems in the pre‐digital era. NDC models need to have more robust arrangements still. Finally, DC systems need to keep track of each contribution, the assets into which they were invested and the returns to be allocated to the individual. As highlighted below, some DC systems essentially run a single strategy for all workers, which is the simplest approach administratively, whereas others have potentially hundreds of choices at the individual level – which is the most complex administratively (as well as having other drawbacks in terms of the ability of an individual to make good choices when faced with so many options).

The key message of the first design choice in terms of enrollment and payments is to make it as simple and as ubiquitous as possible to join and contribute. The message of this section on administration is perhaps the opposite. The ability to manage records and accounts for 40 years (or 60 if the payout phase is included) is very unlikely to be widely distributed in an economy. The ‘traditional’<sup>7</sup> employer sponsored pension plan can have many advantages, particularly with large employers, if there are resources for good governance, delivering expertise and having a long‐term horizon that is focused on the members’ best interest. But many employers, particularly those that are small and medium sized, do not have the time, inclination or expertise to deliver this additional value. Moreover, many workers will have multiple jobs over their working life so the question of how to ensure that their pension contributions can be aggregated and not lost in multiple small pots remains, whether they move to or from a small or a large employer.

In addition to the logistical and technical challenges to running a pension administration operation in many different institutions, the profound economies of scale in pension administration (Bikker, 2013) mean that many small‐scale providers will add to the cost without providing additional benefit. For this reason, the notion of a single administrative clearinghouse has gained popularity – particularly since the successful reforms in Sweden since 1992 (Palmer, 2000). There are many ways to deliver such a system. Some countries, including Sweden and New Zealand, use their tax authorities to act as the collection and administration agency. Others, such as India, run a competitive tender for a private company to deliver the services of a Central Record Agency (CRA). A critical feature is not just the technical specifications and the achievement of economies of scale in costs – but also the control on the fees paid. In Mexico, the different pension fund management companies have established a clearinghouse among themselves 7 Traditional is in quotes because not all countries or indeed regions share the concept of large‐scale employer provision. That said, in many countries not thought of as having an employer tradition – e.g. Mexico or Turkey ‐ there are in fact many large employers both public and private that do provide pensions. That said, for any large‐scale mass enrollment employers are important, even if not following the approach seen in some of the best‐known pension systems such as the Netherlands, Australia, UK and Canada. The key question is whether the employer or group of employers is large enough to provide the economies of scale and resources to have high quality governance and expertise needed to deliver good outcomes. In these cases, a hybrid model might be preferred with a centralized or limited number of administrators, or enforced inter‐operability, alongside the continuation of large scale employer providers. Multiple institutions can add some useful diversity to the investment market and allow greater tailoring of pension provision to particular groups of workers.

11