We shop and bank online, receive our Amazon deliveries by drone and sign up to challenger banks like Monzo via apps. Comparatively, pensions administration remains steadfastly behind the curve, writes the Pensions Administration Standards Association's Girish Menezes.
Many pension administrators continue to battle on using pen, paper and the postal system. These administrators are still working from paper member files, with paper pro forma and a calculator for running benefit calculations. Automation here is just a dream, but why do we allow this to continue?
In 2019 the Pensions Administration Standards Association and Equiniti researched the extent to which technology is leveraged within the pensions administration sector. The findings were mixed – encouraging on one hand but worrying on the other.
TPR is cracking down on schemes that are not running annual common and scheme-specific data tests, and we should expect further TPR investigations into what trustees are doing in terms of cleaning and maintaining their data
Trustees often state that their pensioners do not want to use technology, with only half offering online payslips. But those retiring now were born in 1955 and the Office for National Statistics found more than half of these people shop online; why would they feel different about their pension?
In defined contribution arrangements, only a third of trustees offer their active members online switching or self-service – the rest need to rely on contacting their administrator. Online benefit statements and access to educational content are similarly sparse.
Almost half of the survey respondents cited cost as the reason for not implementing enhanced technology solutions, with a third pointing the finger at poor data.
Schemes still do not know common data scores
Data is certainly an issue. Only half of survey respondents with defined benefit arrangements knew their common data score, dropping to a mere 18 per cent for DC schemes – a worryingly low figure, which could explain the Pensions Regulator’s concern about the quality of DC governance.
Respondents from hybrid schemes appear far more in control, with 72 per cent on top of their common data score. Overall, reasons for not cleaning data were variable, with 40 per cent of respondents blaming the lack of suitable resources and 30 per cent blaming the cost of rectification.
TPR is cracking down on schemes that are not running annual common and scheme-specific data tests, and we should expect further TPR investigations into what trustees are doing in terms of cleaning and maintaining their data.
Of course, with better data, high-quality pension administrators can provide state-of-the-art services to trustees and members. AI-validated data, management reporting with auto-insights, robotic advice and predictive fraud prevention are all possible on a solid base of reliable data. This in turn will improve trustee management information and scheme governance.
However, the cost/benefit equation can be complex. Our expert partner Equiniti highlights a variety of risks and costs caused by poor quality data. For example, delays could occur to bulk activities such as enhanced transfer value exercises, buy-ins or buyouts, higher pricing for poor quality data and reputational risks from members viewing incorrect data.
Similarly, schemes could struggle to meet the data requirements of the proposed pensions dashboards. Worse still, incorrect benefit calculations could trigger lawsuits and potentially class action suits.
No excuse for inaction
Pension administration data sits at the heart of the industry and any liability calculations are questionable if the data is flawed. The cost of cleaning data is far outweighed by the risk and cost impact of ignoring the issue.
Where survey respondents were positive about leveraging technology, they had broadly similar views in terms of what they would like: self-service calculations, benefit statements, online payslips and educational content. But this interest was lukewarm, with only between 20 per cent and 30 per cent seeing a benefit.
This potentially indicates why the use of innovative technology is seen as a 'nice-to-have' rather than a critical investment in data cleansing and technology development. What was particularly interesting was only 12 per cent of respondents had actually engaged with members to research what they expect from their pension scheme and technology.
TPR seeks to extend supervision to select administrators
The Pensions Regulator will attempt to build one-to-one relationships with pensions administrators it considers to be of critical importance, in a voluntary extension of the supervision regime it has already introduced for the largest schemes in the UK.
The PASA e-Admin working group has taken on the challenge to raise technology adoption up the agenda, charting a route from chalk-and-blackboard to a pensions industry more akin to Monzo, Uber and Spotify. An industry that uses digital identities, biometrics and predictive fraud analytics for member identification, and that consigns original birth and marriage certificates and passports to the past.
The PASA e-Admin working group is expecting to release their journey plan to e-admin later this year. Contact them if you want to get involved.
Girish Menezes is a board director of the Pensions Administration Standards Association, member of the Pensions Management Institute’s advisory council and head of administration at Premier Pensions
