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GDPR And GMP – When The Only Kind Of Data Is Good Data

21 August 2018

By Adam Green, Chief Risk Officer at Equiniti

When the government announced its plans for a single tier state pension scheme in January 2013, it signalled the end of contracting-out for defined benefit (DB) or DB underpinned occupational pension schemes. Contracting out ended in April 2016 and from that time the State Second Pension (S2P), the successor to SERPS, would no longer be accumulated.

The government provided more than five years notice for trustees to plan their schemes’ contracted out liabilities and the value of any Guaranteed Minimum Pension (GMP) liabilities certified for their whole membership.  

HMRC created a Scheme Reconciliation Service (SRS) in order for schemes to check their liabilities. The SRS is the central official depository for individual national insurance accounts, GMPs and contracted-out services. Despite considerable engagement, and warnings to avoid a bottleneck at the end of the process, some schemes have been slow on engaging with these services. 

Adam Green 480X320px Adam Green Chief Risk Officer at Equiniti

Data quality is sometimes overlooked as something that can be resolved at a later date, despite its importance to every single scheme process. It is often difficult to prioritise something when there are so many urgent decisions to be made throughout the year.

As a result, it will usually take a major event such as a corporate action or a de-risking exercise to bring the importance of data quality into focus.

HMRC started scaling back their support for SRS earlier this year.  They plan to issue individual statements to scheme members in December to confirm the value of their contracted-out benefits and the dates under which they were accrued.

Once HMRC has notified individuals of their GMP entitlement, members will have certain expectations and if scheme numbers are incorrect this could result in unplanned scheme liabilities.  Data quality can impact members who left some time before contracting out, transfers out or those who were never members of the scheme.

Improving data quality can often be more complex than it initially appears. A reconciliation can call for up to 85 separate pieces of data and it takes only one of them to be wrong or missing to start having a knock on effect on the rest of the scheme.  Even modest issues with data quality can materially increase a scheme’s risks and potential costs.

Time is rapidly running out to make meaningful changes to data. From this year The Pensions Regulator (TPR) will assess all schemes on the quality of their data and they will be measured against their peers. Though TPR favours encouragement at the moment, those schemes who have done the least to improve their data should expect the regulator to be very clear on their failings.

The regulator will look favourably upon those who have made some progress on their data, whereas those who have yet to start can expect progressively harder questions.

Trustees must also consider the calculation of contingent spouses' pensions and how this might be influenced in any GMP equalisation exercise the scheme undertakes.

The regulator sees good data as a central plank of good governance, so if there is a need to commit money to update systems or improve communication to members about these complex projects, planning them together in order to reduce costs would be a sensible move.

If trustees haven’t gone through their GMP process, they will probably find their scheme administrator has a contracted-out liabilities reconciliation/rectification programme in place. If they haven’t signed up for it, they should act.

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