Akash Rooprai – Head of Client Management, ITM
David Fairs – The Pensions Regulator, Executive Director for Regulatory Policy, Analysis and Advice
Emma Watkins – Bulk Annuities Director, Scottish Widows
Jane Kola – Partner, ARC Pensions Law
Stephanie Hawthorne – Freelance Journalist and Chair
Is poor data the elephant in the room when it comes to buyout? Freelance journalist Stephanie Hawthorne chaired a PMI round table on data and derisking. Here are the key takeaways:
Stephanie Hawthorne: What is the state of pension scheme data? Is it more ‘dog’s dinner’ than digital perfection?
Akash Rooprai: The reality is somewhere in the middle but particular focus is needed when it comes to buyout.
Jane Kola: Getting to the bottom of the legal side of the coin is as important as the data. I have worked with schemes going back before the first world war. Those people are probably not with us but you never know, there may be one or two. It is all about the art of the possible. You may have gaps. The gaps will have to be dealt with by taking some risk and making some assumptions.
Emma Watkins: If you provide data which gives marital status, spouses’ date of birth and those are better than the assumptions I might otherwise have used, you will get a better price.
David Fairs: I see data as part of a broader issue around administration. 14 administrators cover 70 per cent of the market. Any one of us could set up an admin firm in our bedroom and do that in a completely unregulated way. Trustees don’t focus on data enough. There is a GMP working group. To get through that, you need working data, regardless of whether you are imminently about to do a transaction or not.
Jane Kola: Not enough time is spent on liabilities.
Akash Rooprai: There is not enough discussion on data issues, not just data in isolation but data linked to the documentation. If the data is incorrect, then the target you are aiming for is incorrect.
Emma Watkins: The market is really busy. Insurers are probably declining 30% to 50% of cases. We assess how confident we are that this case will transact, and one measure is how seriously the pension scheme has approached the data. If we are not satisfied they are invested in this, we will decline the business.
David Fairs: Data is going to have to be accurate and complete, and provided to the dashboard in a timely fashion. There is no easy route out of this. You are going to have to address the quality of data. It is just a question of when. We are launching an initiative and are approaching several hundred schemes and we will target the schemes where we think we are most likely to find issues. We will give them a period of time to sort out the data. If schemes are unwilling to do so, we will take stronger action in the form of an improvement notice. It could be a failure of internal controls. If it is sufficiently bad, we will appoint a different trustee.
Stephanie Hawthorne: How much does data cleansing cost?
Akash Rooprai: In general terms, to do a data cleanse is going to costs a few thousand pounds. That could save you two or three percent on your buyout premium so for every £100m buyout premium, that could save you two or three million. The cost benefit is a no brainer.
Stephanie Hawthorne: What should be your priorities?
Jane Kola: Get the benefits right. Some schemes are overpaying people. That is very difficult but the situation is worse where people are being underpaid. There are always a few and they are entitled to more and should get more.
Stephanie Hawthorne: In case of a total mess up, is indemnity insurance worth the paper it is written on?
Emma Watkins: Most trustees have standard indemnity insurance in place. Use it correctly. Nothing is ideal but runoff insurance is pretty good.
Stephanie Hawthorne: What has been the worst data failing?
David Fairs: Last year lots of boxes were discovered in a warehouse which showed there were lots more members that the scheme didn’t know about. There are all sorts of those.
Stephanie Hawthorne: One lawyers’ survey estimated 61% of schemes didn’t have the data to sort GMP equalisation.
Jane Kola: That is an understatement. You need good data to sort it out. People are entitled to equal benefits. For many it will be a small sum but for some it will be a significant amount of money – it could be as much as 20% of their pension.
Akash Rooprai: The C2 method is the default. Actuaries will do a back of an envelope calculation and say it costs 2% of liabilities but it will cost 2% again in administration costs.
Emma Watkins: If you have equalised using C2, I am not enthusiastic. The alternative is conversion which I prefer.
David Fairs: Make sure your data is accurate and complete and well protected. We are seeing more and more phishing attacks or ransom ware being deployed to seize data. The dashboard is coming along and you are going to have to supply the data to the dashboard. Deal with data accuracy sooner rather than later. We are going to take action against those who don’t comply.
Emma Watkins: Don’t come to the market too soon before you are ready because data gets old and expires; do have a conversation with your insurer and your consultant over which additional data to hold which might get you a better price.
Akash Rooprai: Have a journey plan for your data. Think about all the things you are going to do: scheme member options, buyout, buy-in, and figure out how data will impact that. Then you can figure out what you are going to do and when. Make sure you keep track of manual records as well as digital details such as pension sharing on divorce or scheme pays.
Jane Kola: Preparation is everything and as the lawyer in the room, can someone please find the deeds, all of them? It is well worth getting the benefits sorted out. Once it is done they are not going to change very much. It gives you more credibility if you say you have been working on the specifications for five years and don’t leave it to the last minute. Discretion – trustees don’t like codifying discretion and trying to decide whether to give a discretionary benefit or not in the heat of negotiation is very difficult.
It has become the norm not to invite the administrators to trustee meetings unless there is a complaint. It is also the norm to see lawyers only once every three years. If you are better funded, now is the time for those voices to be heard.
Freelance Journalist and Chair