Jan Manning
Head of Propositions & Solutions for WPP, EQ
The Pensions Regulator (TPR) has already advised schemes to improve data quality continuously and ensure effective data maintenance. But it is still dissatisfied with data standards, so there’s a good chance it will ratchet up requirements further.
TPR may see the introduction of the pensions dashboards, which starts testing in summer 2022, as an ideal time to introduce more rigorous data management standards as many people will use the service to reconnect with schemes from previous employers. Whatever TPR does, it is an excellent opportunity for schemes to improve the data they hold for deferred members, and others.
There are other reasons for developing a best practice data strategy too, including guaranteed minimum pension (GMP) equalisation, and the continued growth in the Bulk Purchase Annuity (BPA) and de-risking strategies of pension schemes.
Why quality data has become crucial in pension administration
Pension schemes traditionally only held the data they needed to administer member records and pay benefits correctly. Further uses for this data have emerged such as online communication improvements, self-service portals, and accessibility standards.
The dashboard, GMP equalisation and de-risking strategies have now made data even more important. As a result, we at EQ are maintaining it in a much more rigorous way for our clients in the workplace and across the life & pensions market - and working closely with them more regularly to check their data is still fit for purpose.
We're also setting data standards across our estate, which allows us to improve and maintain information more efficiently thereby future proofing the administration services we provide.
Guaranteed minimum pensions (GMP) and data
Although the court case that accelerated the move to equalisation was in 2018, it is a long-term process. So, many trustees have concentrated more on preparing for the pensions dashboards, to which schemes and providers will start connecting in April 2023.
Schemes are now starting to plan their data strategy for GMP equalisation too. This requires separation of data into constituent parts, which is challenging if they haven't done it before. Some schemes still have a relatively manual approach. For them, equalisation requires more automation and a specialism in organising data to prepare for that automation.
How data quality is central to de-risking strategies
As evidenced by the growth of the BPA market in recent years, insurance buy ins and buy outs have become popular ways to de-risk scheme liabilities and most defined benefit schemes are planning to buy in or out, if they haven’t already.
Planning a de-risking strategy requires rigorous data improvement because cleaner data enables the actuary to model your liabilities more accurately. This minimises the risk of unknown factors to your insurer, potentially improving the pricing they offer you.
Schemes should cleanse data and fill in missing information - for example, identifying how many over-75s have not yet drawn their pension. Regular exercises to remove small pots by giving them one-off payments can also help.
Data preparation can be a huge task, without the right specialisms or technology enabled processes, especially if you have many parts to your scheme. At EQ, we engage with clients regularly to identify their goals over the next five to 15 years. If you are planning for a de-risking event, we can prepare for it well in advance. If you are not planning a planning to de-risk within five years, you may instead need more automation to increase efficiency – the right data approach and structure is key in either scenario.
Preparing your data for the Pension Dashboard
EQ can provide data to the dashboards, on your behalf, when members or policyholders request it. This will include personal information and pension values.
As the dashboards will likely increase data requests dramatically, you should anticipate this by ensuring you have as much accurate, up-to-date, readily accessible information as possible. You should also automate as much of the data retrieval and passing process as possible and work with us, as your administrator, to achieve these goals.
The dashboards set strict response times for information requests - three days for defined contribution and 10 days for defined benefit schemes. Valuation information must be one year old or less. Some requests will be impossible to automate because of their complexity.
Preparing these manually and passing them to the dashboards quickly will be a resource-hungry activity that requires careful planning with your administrator. For example, if you don’t have all your deferred members’ valuations, you need to plan how to make them readily accessible.
It may be relatively easy to provide active members’ valuations. Deferred records - the main targets of the dashboards - will be more difficult, especially for schemes that have merged or moved administrators several times, which can lead to lost connections with data sources.
You will also need to plan to make additional voluntary contribution (AVC) benefit information available, which is not necessarily that easy if it comes from a third-party provider. Questions include: do they have the right data, how will you retrieve it, and will you provide all benefit information together or leave it to providers to provide information via their channels?
The dangers of mismatched data in future
The future landscape, in a dashboard enabled environment, means you will also need a strategy for dealing with partial or wrong matches. If you can’t get your data up to standard, there is a strong risk of wrong matches occurring. You must have a process for identifying these cases and checking carefully that you are giving information to the right person. The penalties for contravening data protection laws by giving out wrong data are stiff and responsibility for this lies with trustees.
Many people visiting the dashboard will update information regularly and revisit to check updates. The regulator may start requiring the refreshing of data more frequently to prepare for this. We recommend schemes and providers should do this anyway.
More regular contact may mean we have to talk to the regulator and run TPR reports on behalf of schemes more often. These will help show everything is up to date – and, if data quality is low, to show it is improving.
If we fail to meet the dashboard’s service levels, there could be penalty fines and negative publicity for your scheme. More rules from the regulator would add to this pressure further.
To avoid these risks, and to meet all the other challenges discussed here, we recommend working with a proven partner, to develop a best practice data strategy - and aim for a world-class approach. In this respect, EQ are here to help.