Poor data impeding derisking plans for smaller schemes

The Pensions Regulator's annual record-keeping survey has revealed a lack of awareness among smaller schemes about their data obligations. In issuing its guidance on record-keeping, the watchdog warned poorly managed data could lead to significant extra costs in areas such as buyouts and wind-ups.

Research by information management company EDM Group found a large proportion of information held by defined benefit schemes was either paper-based or on microfilm.

When the company surveyed pension professionals about the effect this had on them, 34 per cent said it made analysis more time-consuming, while 32 per cent said it made it more difficult, slow and costly to retrieve data.

Thirty-one per cent admitted that having information held in this way made it difficult to integrate the data with business applications.

The survey of 163 professionals involved in the running of DB schemes also showed nearly one in four believe the level of derisking will increase dramatically over the next five years. But only 5 per cent thought the quality of data collection by DB schemes was ‘excellent'.

Given the position of most schemes, I think doing a data cleanse is important

Emma Watkins, head of buyout business development at consultancy LCP, said despite the difficulties some schemes face around poor information, it was still worth looking at derisking.

“If you are in a situation where you are planning an endgame, concentrating on data is incredibly important in your long-term planning,” she said.

But if a scheme was able to benefit from good market conditions it could be better to act, even if its information was not of the highest quality.

“Actually having a realistic conversation with the insurer about your data and capturing market movements is likely to be a better outcome than missing that market opportunity because you haven’t resolved all your data issues,” added Watkins.

Last year saw the greatest number of £100m-plus individual derisking deals made by schemes since 2008, according to data published by LCP earlier this year. This was despite an overall drop in the volume of business.

Simeon Willis, principal consultant at KPMG, said member data becomes very important if you are looking to derisk using insurance products.

“If you are planning to do a buyout or a buy-in, or you are planning to do some longevity hedging, it is really important to have good-quality data to get sensible quotes,” he said.

Some schemes have used the need to undertake data cleansing as an excuse not to derisk, Willis added.

“In fact, given the position of most schemes, I think doing a data cleanse is important, but it is not a reason not to get on with derisking as well,” he said.

But not having satisfactory data could have financial implications for schemes, according to Martyn Phillips, head of buyouts at JLT Pension Capital Strategies.

“If there is any uncertainty or risk around data quality and you are looking to complete a buy-in or buyout then that can result in the counterparties – the insurers – which are looking to transact with the scheme, loading price to a degree for [missed] margins around the data,” he said.