Schemes managers and trustees are given a step-by-step guide to making their data regulator-proof by Broadstone's John Newman, in the latest edition of Technical View.
The regulator recommends providers and administrators of pension schemes follow the good practice guidance which provides a framework for checking that data exist and are accurate.
Key points
Engage with your administrators to undertake a data audit as soon as possible.
Draw up an action plan to correct the missing data.
Reassess the quality of past and current records on a regular basis.
This includes measuring the presence and quality of the most important items of member data.
If problems are identified, plans should be put in place to fill any gaps in, or make corrections to the data. Regular rechecking – annually or more frequent is suggested – will provide evidence of improvements in the data held and more importantly whether there has been deterioration.
Although keeping the scheme records is a task routinely delegated to the pensions manager, administrators or an insurer, trustees are still responsible for seeing the job is properly done.
The accuracy of the benefits paid from the scheme relies entirely on the quality of the data.
It is therefore fundamental that trustees are satisfied the data are accurate and correct. From this, the administrators and actuaries are able to properly calculate benefits and the value of liabilities.
When is the right time to assess?
Historically, data have been assessed at the time the benefits came into payment, with discrepancies dealt with on an ongoing basis.
When the data were accurate the benefits could be paid. However, the world of pensions has become increasingly more complex. The tranches of benefits has increased and with this increase in data comes an increase in the number and frequency of the chance for there to be missing items.
This ad hoc method is no longer fit for purpose, and so a bespoke data audit, broadly in line with the guidance proposed by the Pensions Regulator, is now extremely common.
This audit will capture the data and validate the items required by member status. Data audits can be carried out by standalone firms, although most third-party administrators have the capability to conduct an audit.
From this a summary of the missing data will be supplied and an action plan to fill the gaps should be produced.
How can you correct the missing data?
First, the schemes must have a plan. There is likely to be a range of data missing – some crucial to the payment of benefits and some less so. The trustees should prioritise data that are integral to the payment of benefits, such as salaries, service dates, contributions, dates of birth.
Second, the trustees should understand the sources for the data. Many schemes will have gone through changes to participating employers, administrators and trustees, as well as corporate transactions and scheme mergers. There are a number of steps trustees can take to correct the data:
Engage with the employer to request they work to fill the gaps as best as possible. This will be a cost the employer will have to bear but will be a cheaper option for the trustees.
Instruct a tracing agency and make use of the Department for Work and Pensions' tracing service to track down errant members.
Dive into the archive paper files to see where data may exist in paper form – but, for whatever reason, had not been transferred to the electronic records.
Schemes should establish a standalone project to deal with the data issues to ensure they are properly controlled and managed to conclusion.
It should aim to fill the data gaps as quickly as possible. With many schemes moving towards wind-up, action should be taken sooner rather than later.
John Newman is pensions director at Broadstone Corporate Benefits
