DB schemes to face major data exercise for dashboards

Administration professionals said that most final salary plans hold the data they will be required to submit to the project, but not in a format that fits standards announced by the Pensions Dashboards Programme on Wednesday.

The report by the PDP, created by the Money and Pensions Service and formerly known as the Industry Delivery Group, stated that DB funds will have to provide an estimate of the annual income the individual might receive in retirement, in today’s money terms.

Maps also dampened hopes of seeing the project implemented in the near term, stating that the dashboards will be ready to launch to the public once the group can be sure that they are secure, the user experience has been tested, and behaviours have been understood. Any unintended outcomes will also have to be resolved, and the service will need enough coverage to be useful to a significant majority of people before it is released, Maps said.

Only a handful of DB schemes are still with their original administrator; the current providers take it in good faith that the data is accurate, but could not provide any kind of reassurance on this

Girish Menezes, Premier Pensions

Trustees facing data challenge

For DB schemes, the effort needed to comply with the PDP’s requirement to provide an estimate of the annual income the individual might receive in retirement, in today’s money terms, will be significant.

For active members, prospective annual retirement income will be calculated from their latest annual statement, using current earnings. Deferred individuals will see their annual pension at the date of leaving uplifted to include any inflation-proofing that has already been amassed. 

“Although the data exists to calculate this for each member, most schemes do not hold their data in a way that could currently support this,” said Gary Cowler, partner at Aon, who added that some scheme benefits are too complex to be described as a single annual income.

“To make that one item available for every DB member in a meaningful way would be a major exercise,” he warned.

Mr Cowler questioned whether undertaking this overhaul should be a priority for trustees and administrators, and raised the possibility that the dashboards might not need data to be presented in this way when they are first launched.

“Administration teams are already busy finalising guaranteed minimum pensions reconciliation and starting GMP equalisation, and both schemes and sponsors are under financial pressure due to the Covid-19 pandemic,” he said.

Girish Menezes, head of administration services at Premier Pensions, agreed that the project will be challenging for DB schemes, especially since data may have been lost during transitions.

“Only a handful of DB schemes are still with their original administrator; the current providers take it in good faith (unless otherwise specified) that the data is accurate, but could not provide any kind of reassurance on this,” he said.

Under normal circumstances, administrators only recalculate figures when they receive a request for a retirement quote, and few schemes require them to revalue deferred member benefits each year.

“To achieve a position where all DB arrangements can reliably provide this figure would be an expensive and lengthy project,” Mr Menezes warned.

Members to benefit

While administrators may be dreading work to be undertaken, the PDP’s specifications will improve information available to deferred members in particular, said LCP partner Steve Webb.

“I left the Parliamentary Contributory Pension Fund scheme in 2015 and I haven’t heard from them since. If I go on a dashboard I would expect to see a 2020 pension figure,” the former pensions minister added.

He noted that the current lack of communication with deferred members poses challenges when individuals need to make lifetime allowance calculations.

Mr Menezes shares a similar view. He said: “The strategy behind this requirement is a positive one. Given time, trustees should invest in holding accurate pension amounts at date of deferment and keeping these revalued annually.”

However, he added that “this should probably not be part of a first-phase launch”.

Maps unable to provide delivery timeline

In the report, Maps stated that although the industry has called for a clear dashboard delivery timetable, it is unable to provide one at this time, but hopes to do so before the end of the year.

The working group said the scale of the project, delays to regulation, and data issues have made this difficult.

A staged approach is envisaged for the onboarding of providers and schemes to the dashboards, but a relatively small number of large pension providers joining would make the majority of pension entitlements available form an early date, according to Maps.

The group said the Department for Work and Pensions and the Financial Conduct Authority will consult on the development of regulations once the pension schemes bill – which contains primary legislation on dashboards – is given royal assent.