The number of public service pension schemes disclosing inadequate processes for monitoring data accuracy and completeness has risen, as the Pensions Regulator pledges to clamp down on those falling below the standards it expects.
The watchdog regulates public service schemes providing pensions for 16.7m people in a number of areas, including local government, teachers, health service workers and members of the armed forces.
In its latest survey on public service governance and administration, published last week, the regulator noted its disappointment that administrators were operating without agreed service level agreements in 26 per cent of schemes, and that just 20 per cent of schemes impose penalties where administrators fall short of service or contractual standards.
I think setting more ambitious targets for schemes is absolutely essential
Dan Taylor, Trafalgar House
It also criticised the rise in the number of schemes that disclosed inadequate processes for monitoring data accuracy and completeness. Fifteen per cent of schemes did not have these in place, up from 11 per cent in 2016.
In its report, the regulator said: “Scheme managers should be aware that we are more likely to use our enforcement powers this year.”
These will include fines that vary depending on the cooperation of schemes and their propensity to report data breaches.
A bad year for the industry
In its recent quarterly bulletin, the regulator disclosed that for the first time, it has used its section 72 powers and imposed a fine against a professional trustee after the scheme failed to update its register with news of their appointment.
Daniel Taylor, director at third-party administrator Trafalgar House, said the regulator’s findings were a “damning testament of the industry”.
He highlighted the survey’s findings on the comparative absence of service level agreements with administrators.
“I do not know of any other industry where such... large, important outsourced contracts are in place, where you would not have any metrics to monitor or manage the service,” he said.
The regulator said that it is “questionable” that 28 per cent of schemes that reviewed their data did not uncover any issues. Taylor agreed with the watchdog, and said that the finding “cannot be wholly accurate”.
He cast doubt on the effectiveness of levying fines to regulate the industry. “I think setting more ambitious targets for schemes is absolutely essential,” he said, adding that schemes must implement improved administration infrastructure.
LGPS burdened by more employers
Nearly one in five schemes did not perform a data review in the past 12 months, with a further 8 per cent unsure if they had done so.
Joe Dabrowski, head of governance and investment at the Pensions and Lifetime Savings Association, identified data reporting as “the most crucial” area for Local Government Pension Schemes to improve.
Key findings
Twenty-six per cent of schemes do not have service level agreements with administrators
Only 20 per cent of schemes use penalties where service or contractual standards are not met
Fifteen per cent of schemes lack adequate processes for monitoring data accuracy and completeness
“The challenge over data reporting has been exacerbated by the recent unprecedented rise in employers within LGPS, alongside budgetary challenges in recent years,” he said.
Total LGPS membership grew to 5.6m members in 2017, up from 5.2m in 2016, according to the LGPS advisory board. Over 14,000 employers participate.
“LGPS members are very aware that steps must be taken to improve the quality of their data and this is an area the funds and the scheme advisory board are actively seeking to improve,” Dabrowski added.
Juggling multiple schemes
There is further concern over the boards presiding over public sector schemes and their commitment to good governance.
Pension board meetings took place less than quarterly at 43 per cent of schemes over the research period.
Board chairs were only involved in 45 per cent of responses to the regulator’s survey, with pension board members contributing to just 16 per cent of responses.
Karen Kendall, partner at consultancy Quantum Advisory, queried “whether some of these entities have the right individuals on their boards”.
“Are they viewing it as a commitment to that pension scheme, or are they the great and the good who are mainly sitting on boards of 10 large schemes where they’re meeting less than quarterly,” she asked.
Board members of multiple schemes risk turning their job into “more of a tick box exercise” she said, when they should “roll their sleeves up and find out what is actually happening” with their pension scheme.
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A spokesperson for the regulator said: “We have worked closely with public service schemes for the last three years, by meeting with them and by providing guidance material, to help them meet our clear expectations.”
“Now, as part of our drive to be clearer, quicker and tougher, we will use our powers where we see schemes fall below the standards we expect,” the spokesperson added.
