Tackling the murky world of pension scheme data
01 Dec 2017 - Estimated reading time: 5 minutes
The murky world of Defined Benefit (DB) pension scheme data has never been more in the spotlight. It stepped out of the shadows briefly in January 2009, when the Pensions Regulator (tPR) issued its “good practice” guidance on data quality. This encouraged trustees and administrators to measure the presence of both common and conditional data items important to the administration of a pension scheme and detail improvement plans where gaps were identified.
However, the expense of up front data cleanse exercises can make them unattractive and, typically our experience has shown that trustees often limit these exercises to data that is essential in the day to day running of a scheme. While we can all understand the financial constraints that drive such a decision this does mean that trustees can lose out on the cost savings that calculation automation brings and of course the level of available member self-service will be limited. At the same time, provision of data for scheme events, such as an actuarial valuation, can be more time consuming and thus expensive than it needs to be due to the need for manual intervention.
Data is at the forefront of our minds once again with the implementation of the EU General Data Protection Regulation (GDPR) coming into effect in May 2018. In addition, with the cessation of contracting out, schemes have already been reconciling relevant data with HMRC’s records, correcting any discrepancies in GMPs which can then result in the need to re-tranche member benefits both in deferment and in payment.
Every trustee has always been aware of the importance of accurate benefit provision both to the individual and to the financial health of the scheme. But there are other compelling reasons to address data issues now.
In its 2016 Budget, the government made a commitment to design, fund and launch a pensions dashboard by 2019, allowing individuals to view all their retirement savings in one place. While there remain many unanswered questions about the dashboard, not least whether the government will make compliance compulsory for pension schemes, its development does highlight the need to keep good member records. This goes beyond the Regulator’s guidance as it is not just the presence of data that needs to be reviewed, but also the quality and accessibility of the scheme data.
As schemes look at the requirements of the dashboard, initially and as it develops, this is an opportunity for them to look at the work that will be required to facilitate the ability to partake in one of the biggest challenges to face the industry.
Maturing DB schemes moving to risk transfer and wind up
As DB schemes mature, increasing numbers of them are looking at risk transfer and wind up exercises.
An important point often not fully appreciated is that the levels of electronically held data accuracy and consistency required for performing ongoing administration, does not equate to the requirements for risk transfer or wind up.
When a member event is processed by an administrator, unless the member record is already flagged as clean, then typically it will be cleansed as part of the quotation and settlement process. An administrator will perform a data audit for completeness, accuracy and consistency of storage which will often include extracting relevant data from the scanned electronic documents held on the record. It is this part of any bulk data cleanse exercise that will be time consuming and thus expensive to perform and may highlight other areas where data is absent and needs to be collected.
For example, a spouse’s pension may not be showing on a member’s record and historically may not have been actually calculated until the member dies, but will be required for all members involved in risk transfer or wind up exercise.
It is easy to see why a trustee group would not have addressed this in an environment whereby the expectation was to keep on with routine administration for the foreseeable future. In this changing world different thinking is required in order to be prepared for what the future holds for members and trustees.
A planned data cleanse program can bring benefits in many ways, such as:
- Risk transfer and wind up premiums will be more affordable where the data has been signed off as clean. This can often be material in whether risk transfer is achievable or not within a certain timeframe;
- Premiums in the market are known to vary as can the number of providers willing to transact at any given time. Ensuring data is transaction ready means that schemes can secure their place in the queue and move more swiftly to secure the best deal possible; and
- Data cleanse work can be labour intensive and will be competing for priority with other scheme administration work. It stands to reason that the more notice administrators have, the better able they will be to plan and implement its completion, while maintaining focus on the business as usual of servicing the members.
The benefits of data management where risk transfer is part of the journey of the trustees are irrefutable. However, even if a risk transfer exercise is not currently part of the long term plan for a scheme, it is worth remembering that fit for purpose data will increase administrative efficiency, enabling optimum automation for both member and scheme events and member self-service. Our experience has shown that increased member self-service greatly reduces the reliance on administrators to provide ‘what if’ illustrations for members, reducing costs for trustees and allowing the administrators to prioritise ‘actual’ member events. Proven results of this are reduced ongoing costs for the scheme, especially in a maturing membership, improved member engagement and a heightened appreciation of the trustees.