We See more - Uncovering The Thoughts Of A Trustee
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Uncovering The Thoughts Of A Trustee

07 August 2018

Trustees are being asked to spend a great deal more of their time focusing on the crucial scheme component of data. We spoke to Shona Goulds from AAA Trustee Limited(‘AAA’) about her approach to this thorny subject.

Tell us about what made you want to become a trustee.

I became a professional trustee in order to influence and implement the proper governance of pension schemes in a dynamic and real time way. Making decisions and ensuring these are implemented by a scheme’s service providers in a timely manner. 

As a trustee, which areas of scheme management concern you most?

The absence of complete and up-to-date governing documentation and data. There are around 10 areas I focus on following appointment to a new scheme. One area will be the date when the last definitive trust deed and rules was written – best practice suggests a consolidation exercise should be carried out once a decade, but quite often it can be many decades since this was last done. At the end of the day, our ultimate client is the member. We have a fiduciary responsibility to them and if we fail on that fundamental fiduciary responsibility then why are we here?

You have done many pension related roles, but what importance do you place upon data and what are the issues trustees face?

Poor quality data and thus the payment of an incorrect pension will have a detrimental impact on my members. Their future security is in my hands and that’s a scary thought if you get it wrong. Hence the tremendous importance of getting this aspect of a scheme’s operations right. 

The first challenge is to get the rest of your co-trustees on board. Administration, accurate data and up to date governing documentation just isn’t sexy – it doesn’t really get people’s pulses racing. 

The next consideration is the employer, because getting data and documentation right is an expensive task and has, historically, been the poor relation and given insufficient attention. I need to convince an employer to invest a significant sum of money in a benefit audit in addition to their scheme’s routine administration. However, matters do not stop there. Members’ benefits must be reconciled and then rectified – both of which are additional projects. The final step is the – often delicate – member communication exercise. So, the biggest obstacles are psychological – convincing your colleagues of the importance of this task – and then financial.

How do you convince key stakeholders of the benefits of doing this sooner rather than later?

If an employer and/or key stakeholders are involved in a corporate transaction that requires a ‘clean scheme’ then it is – potentially – an easier ‘sell’. Knowing the size and shape of the ‘elephant’ facilitates a more realistic transaction. Knowing they are receiving the correct benefits and understanding what their dependants are entitled to receive must be reassuring to members. 

It’s more difficult when the finance director is not a scheme member, as they don’t have any ‘skin in the game’. Explaining that funding their scheme by reference to a solid database and accurate governing documentation will save them money when the scheme comes to be bought out – overlaid with a legal requirement to report on the quality of a scheme’s data – is challenging, but is generally accepted, even if the project is postponed until the following year. 

The possibility of over funding a scheme due to wildly inaccurate information is also likely to be a concern for FDs.  

What impact does regulation have on trustees, members and schemes? 

Changes to pensions legislation have made administration complex. Sub-optimal documentation and poor historical decision-making which has not been documented compounds the problem. 

Accurate data is crucial but it is the whole process around it – documentation, legislation and how it impacts on each scheme – that carries equal weight not forgetting that each scheme is unique and has its own quirks. 

The legislative landscape will continue to evolve, but how do you think it will impact you and your members?

Equalisation – both in terms of core benefits and GMPs where a scheme was contracted-out – is a key target area. Once appointed, we ask whether this has been done and inevitably we are told it has been reviewed. However, it usually turns out that it hasn’t been reviewed thoroughly. 

Irrespective of future legislation, you cannot equalise benefits unless you have the correct data and have been able to reconcile members’ benefits against the rules.

 

My message to trustees is to take a long look at your data and get your house in order now. Then you will be in a much better place to deal with any future legislative changes.

Trustees need to understand that a full suite of accurate data and up-to-date governing documentation is as important as a scheme’s investment strategy. Integrated risk management should encompass this and not just investment, covenant and funding.

What is next for member engagement and what needs to change to make it happen? Is it just about good data or are there other important elements?

You need to be confident about the information, so good data is essential. There is little point engaging members if what you tell them is wrong. So, before a member engagement exercise, you must go back to basics and prepare.

You must target what they need and can understand. Help them assess what they will require by way of an income in retirement. I think people have yet to fully appreciate the potential disaster that lies ahead in terms of their retirement planning. There is the risk of a generation of people that will potentially be much worse off than they had hoped to be. However, good engagement can help to avert this.

For those who have not started looking at their data, what approach would you recommend?

There’s no better time that the present. They will have had to report on their scheme’s data in the Pensions Regulator scheme returns this year. I imagine the regulator will focus on those schemes that haven’t done any form of data cleansing.

The problem is that data is not only inaccurate, it often isn’t even present. If you don’t know the parameters of the pension you are calculating, then even if your data is 100% accurate, your administrator will not be able to calculate the correct pension.

So, review and update your scheme’s governing documentation, ask your administrator to undertake a benefit audit and then put in place a plan to reconcile and rectify members’ benefits.

In my experience, it’s highly unlikely that all your members will be receiving the correct pension or will have received an accurate indication of what they can expect to receive once they retire.

With the regulator now taking a closer look at scheme data, have things gone far enough at this stage to improve data?

From my experience, there is always more that can be done to improve the existence and accuracy of data. For example, an issue arose on one of my schemes recently that had not ‘crossed my radar’ previously. During the transition of the scheme to a new administrator, the incoming administrator advised the trustees that the previous incumbent did not hold life time allowance data for a large swathe of the membership. 

This was the first time the trustees had been advised of this and after taking legal advice, we discovered that this data should have been present for every retiree since 2006 – a period of 12 years.

HMRC can levy sanction charges, but the trustees put in place a plan to correct this as soon as they were alerted. Nonetheless, this prompted me to check out the issue on my other schemes and I found not one held 100% of this data. Plans are now in place for each of those schemes to correct that omission.

Trustees need to understand that a full suite of accurate data and up-to-date governing documentation is as important as a scheme’s investment strategy. Integrated risk management should encompass this and not just investment, covenant and funding.

Is the industry doing enough to promote good data and how important it is from a scheme prospective?

The importance of good data needs to be emphasised. The industry can certainly do more, but without further legislation it will likely remain a nice-to-have. Therefore, the industry needs to make it more important, emphasise the legislative requirements and trustees’ fiduciary responsibility.

My one word of caution to the industry is not to be greedy and see this as a long term project. If administrators charge too much for this work, it will simply not get past the FD’s scrutiny.

Break it into bite size chunks: governing documentation in the first year, benefit audit in the second year and in the third year, reconcile, rectify and communicate with members.

Have a plan, know how you are going to deal with your data to improve its quality to ensure you are in the best possible position.

Trustees can’t run away from this onerous task anymore. It is essential that this nettle is grasped.

If you would like more information and guidance on how to start your data cleanse then please get in contact with our team of specialist experts today by visiting www.equiniti.com\weseemore or email us direct at WeSeeMore@equiniti.com.

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