The importance of good record-keeping and the role technology can play in ensuring decent member outcomes were the main agenda items covered at the Pensions Age/ITM half-day seminar in London in March.
The delegates heard how accurate data records are becoming more essential as increasing numbers of defined benefit pension schemes are beginning to de-risk, and trustees look to conduct GMP reconciliation processes amongst a vast range of other data cleansing exercises.
In the opening address, TPR policy lead Louise Hallard gave an update on the progress of the regulator’s thematic review on record-keeping.
“Accurate records are important for every scheme and having good data will lead to an overall smoother retirement experience,” she said. “Data must be correct for automatic transfers, GMP exercises, auto-enrolment requirements and when it flows from employers to administrators.”
Hallard said there is “no excuse” for schemes not adhering to the regulator’s data requirements and emphasised the regulator will use enforcement powers where necessary to address those schemes not up to standard. Of the 237 schemes in the thematic review, 201 showed a ‘good’ level of record-keeping, 29 received recommendations for improvement and seven are to be investigated as part of the regulator’s record-keeping clampdown.
The theme of record-keeping was carried on by ITM director John Broker who applauded the regulator’s efforts in trying to improve this area, but he argued the approach could be even “tougher”.
“The regulator has said in the past it doesn’t intend to prescribe conditional data,” he said. “There are still two to three million data records that have not been tested. A lot of pensioners are overpaid or underpaid and that is a result of the industry not being tough enough on data standards.” Broker said the regulator should arrive at a compromise in which schemes can decide themselves about what is included in conditional data sets, but statutory data is obligatory and must be tested and held correctly. With the cessation of contracting out taking place in 2016, Broker emphasised the huge task in hand for administrators dealing with GMP reconciliations. Around 4,000 pension schemes are currently contracted out in the UK giving HMRC two years to deal with this issue. In 2018, HMRC will write to 20 million members with their GMP entitlements.
Muse Advisory director and co-founder Avgi Gregory said the main reasons why data is in the spotlight more than ever is because of “the stance of the regulator but more importantly as a result of liability management exercises”. Gregory provided an outline of data challenges faced by trustees as the principal owners of records and the main questions they are or should be asking themselves. “Data exercises can end up much bigger than expected, the trustees need to have the right governance in place to decide how much to do, what the biggest risk areas are within the pension scheme and what the priorities are,” she stated. Trustees are faced with the challenge of whether to audit or not to audit data, whether to cleanse or not to cleanse and who should pay for the independent quality assurance, she added. All these questions are of paramount importance in ensuring good data to pay member benefits and to begin the de-risking journey, the audience heard.
Legal & General’s head of bulk annuities and longevity Tom Ground warned poor data can lead to the insurer overpricing a transaction or quoting a worse price than the scheme expects.
“There is about £1.8 trillion worth of DB liabilities in the private sector, even more in the public sector and even more in the unfunded sector,” he outlined. “Eighty per cent of that is now in scope for buy-in, or buy out, closed to new accrual. That is an increase from four years ago when only 20 per cent was closed to new accrual. Data is key to this. I receive the data from the scheme, my team prices the data and that is the final price from the insurer. The data provided generates the price.”
With delegates briefed on data requirements and the effects poor record-keeping can have on the members’ themselves, the conference also heard about the role of technology in the admin and data environment. ITM director Dan Hockley looked at the current deployment of technology within pensions and how future development will be received by the pensions community. Hockley said administrators will eventually become a thing of the past as schemes begin investing in data and admin technology such as cloud services leading to savings and cost reductions, eventually benefitting the member. “With changes to legislation particularly around automatic enrolment, there is a moving away from a scheme centric based system back to a member-based centric system where members have choices, members move around, they want to see why specific investments are not performing or why their pensions are low,” he said. “Administration systems will have to move to automatic processes to deal with this. We need to be re-engineering our processes using innovative technology following on from what has been achieved in the banking industry.” Hockley said a technology driven admin and data environment could also be essential in the event of Scottish independence, for companies looking to keep their sites operational north of the border.
Many pension records are held in non-digital format such as paper files which can be damaged easily, or microfilm and microfiche. EDM group chief technology officer for the UK and Americas Spencer Wyer provided an overview of the services on offer that can ease the burden of pension administration, auditing and compliance. “Analogue records can be bulky, are very difficult to share and work with, can be expensive to access and re-file, and are inherently insecure in terms of inappropriate or unauthorised access,” he said. Wyer added that EDM has digitised over 14 million images of microfiche and paper pension records in the past 12 months alone, and explained how ‘intelligent capture’ techniques have enabled them to extract critical data used for de-risking and GMP processes.
Adam Cadle is News Editor, Pensions Age