PASA has released its guidance on data readiness for buy-in which is, in our view, very welcome.
We have been on a journey to improve pension scheme data for some time. This is what underpins our approach to providing services for pension schemes, and ultimately is what drove us to develop our award winning software Mantle.
The PASA guidance is helpful and reinforces what we have been advocating, and implementing, for years.
Defined benefit pension schemes are complex. What started out as a relatively simple concept (a guaranteed level of pension at retirement) has been complicated by regulatory change, court proceedings, European law and changing retirement patterns. All of this adds complexity to benefit calculations, and therefore requires more and more data.
The position is further complicated by the length of time pension schemes have been in operation and changing data requirements over time. Even relatively simple schemes can have hundreds of data points required to calculate benefits correctly.
The PASA guidance is helpful in its simplicity – you need data to know what the benefits are and pay them as they fall due. If you move to buy-in/buy-out it effectively brings forward this process as you need the data to know what the benefits are now (not only as they fall due).
We have never adopted an ‘as they fall due’ approach. Our ethos when beginning a new partnership with Trustees has always been to build from the bottom up, carrying out a full data audit and benefit audit. Accompanying these with a detailed benefit specification that has been agreed with both the scheme administrator (to mirror administration practice) and by the scheme legal advisor (to formally sign off as a reflection of the Trust Deed and Rules), completes the foundation for a well run pension scheme. Regular data screening adds value as mentioned in the PASA guidance, and being able to monitor data quality (shown in real-time within our Mantle system) helps Trustees ensure they keep on top of things.
Building this strong foundation makes the road to buy-in or buy-out so much easier. It also has a number of other added value points such as automation of administration and actuarial calculations resulting in better response times for members, accuracy of liability calculations and efficiency when considering options exercises.
We have expanded our quest for more accurate scheme data by providing members with online access via our member app. This allows members to update their data directly, resulting in better data quality over time.
With the rise in interest rates over the past few months, more schemes are ready to approach the insurance market now, or in the near future. Trustees also have another impending deadline that requires good scheme data – the Pensions Dashboard.
We would encourage Trustees to engage with advisors around data quality. In our view, a fresh pair of eyes can be helpful, and sometimes it can be difficult for existing advisors to raise issues that have been present for a number of years. Overall, it is important that advisors have the systems in place to assess data quality efficiently, monitor this over time, and implement solutions easily.
Look out for follow up blogs from Angela and Tom about the specifics of the guidance and what Trustees should think about. Connect with Spence, Angela or Tom on LinkedIn to get the updates straight to your news feed.