The Pensions Regulator has published clear guidance on record keeping and the steps that it expects trustees to take to ensure that their data is fit for purpose by the 31st December 2012. In a welcome reprieve for trustees, the end of the world is set for 21st December 2012.

Everybody knows that pension scheme data stored electronically, particularly historic data, is poor across the industry, but trustees have been reluctant to address the issue, possibly because they lack the tools to do so. Despite the recent regulatory guidance many still seem disengaged from the problem – but you never solve a problem by ignoring it.

The attitude of many trustees and administrators to this issue has led me to conclude that the only logical explanation for their inaction is that they are hoping that prophecies associated with the Mayan Long Count Calendar (“the Mayan calendar”) will render the issue redundant.

For those of you who are unaware, there are those amongst us (admittedly there is a question as to whether they should remain amongst us rather than be held in a secure facility where they can receive appropriate help) who believe that the Mayan calendar predicts that the Earth will end on 21st December 2012. The Mayans are no fools and accomplished remarkable feats in the written language, mathematics, astronomy, astrology, art, architecture, agriculture, and much more, so it’s likely they’ve got the end of the world right as well, runs the argument. Handily for trustees and administrators the end of the world will come 10 days before the Pension Regulator’s deadline for sorting out their data.

Unfortunately for trustees and administrators there are a number of problems with relying on the astrological predictions of an ancient civilisation that the world is about to end as a solution to their pension data issues.

• It probably doesn’t really satisfy their fiduciary responsibilities to members
• In an exclusive interview with the Daily Telegraph (seriously) a Mayan elder has made it clear that no such prophecies exist
• NASA has a special web page refuting the claims (seriously, again)
• The Pensions Regulator has made it clear that it will review progress in 2011 on the take-up of its guidance and its effectiveness in addressing problems identified in its earlier consultation. So on the off chance that the world does end in December 2012, it may not save trustees from regulatory scrutiny.

Whatever way you look at it, trustees are going to have to deal with their data issues, and the sooner, the better – but it doesn’t have to be the end of the world.

For our take on how to beat the 2012 deadline click here

For an alternate view of how John Cusack might handle things click here – 2012 The Movie

Pension scheme trustees, even most professional trustees tend to concentrate on the “big” issues like investment, the actuarial funding position of the scheme and the employer convenant.  This is right and proper but the attention given to pensions administration may suffer as a consequence.  Relative to actuarial swings and roundabouts pensions administration costs are small.

Nevertheless the cost of administration and achieving compliance with more and more onerous regulations is an area where trustees do need to ensure that they are getting value for money.

We have had a lot of hits on our website for a simple pension administration cost calculator devised by Sean Browes which allows trustees or employers to benchmark pensions administration costs.

Brian Spence is a founder of actuaries Spence & Partners Limited and a director of independent trustee Dalriada Trustees Limited.  You can follow him at @briandspence or @PensionsEndgame on Twitter or link to him on LinkedIn.

Follow @SpencePartners and @DalriadaTrustee on Twitter.

Complete and accurate pension scheme data is an essential ingredient for effective management by trustees and corporate sponsors. Otherwise there is a serious risk that incorrect benefits will be paid and the company and trustees will not be in full control of the funding position. This article focuses on occupational defined benefit schemes but many of the principles also apply to defined contribution arrangements.

Inadequate data issues often come to the fore when pension schemes are winding up or Read more »

I was recently reviewing a set of accounts from a partly PPF bound scheme with both final salary and money purchase sections. Just to complicate matters the money purchase section was contracted out on a GMP basis prior to 6th April 1997 (i.e. it has a Defined Benefit underpin); oh and a couple of the money purchase members had their annuities purchased in the Trustees’ name when they retired. This all leads to some fun and games when you try to segregate the membership and assets.

It’s relatively straightforward if you stick with the terminology final salary and money purchase. A final salary member is always a final salary member and a money purchase member is always a money purchase member and therefore money purchase section assets, are always money purchase section assets but, is a defined contribution member always a defined contribution member?

So many people, myself included, at times use the terms final salary & defined benefit and money purchase & defined contribution as though they are interchangeable which is not always the case and can lead to confusion. Final salary pension schemes are the very definition of defined benefits however, although money purchase schemes tend to be defined contribution, this is not always the case. Up until the beginning of this century KPMG and the Pensions Trust had money purchase schemes where a specific contribution level would purchase a specific deferred pension, and there are a multitude of pure money purchase schemes that look like defined contribution but have a capital guarantee where your individual fund value is guaranteed to be no less that your contributions which makes it a defined benefit.

Does this really matter? Am I just being a pedant? The answers are yes and maybe a little.  A pension scheme that looks to be money purchase but has a defined element has all the governance requirements and risks of a final salary scheme; they need actuarial involvement (including triennial valuations), pay PPF risk based levies and have the same company accounts reporting requirements as final salary schemes.

In the particular scheme I was looking at we have the position where members have accrued benefits in the money purchase section on a defined contribution basis but when they retired the annuity was purchased in the Trustees’ name. So although the liability is completely matched by the investment, they are scheme pensioners with a defined benefit i.e. they are a pensioner of the money purchase section but also a defined benefit pensioner.

As for the GMP underpin members, this is where quantum theory comes in; the PPF will only recognise them as defined benefit members (at least for compensation purposes) if their fund values are insufficient to purchase annuities that will cover their GMP. Therefore as with the fabled cat you don’t know what they are until you do the test, until then (depending on your quantum school) they are either both DC and DB, or neither.

Actuaries and pensions lawyers up and down the UK are earning good fees providing opinions on the vexed subject of equalisation after Angela Eagle’s welcome announcement.  GMP Equalisation continues to be consigned to the “too difficult” tray with prevarication along the lines

…this is an impossible task

…the government’s view is not binding

…trustees should wait for government guidance on how to equalise

For example, and not wishing to single them out, the otherwise esteemed actuaries Lane Clark & Peacock say “The industry has been asking for this for 20 years and not yet received a response.” Well actually no that is not true – we have not been asking, we know what equal means and have done since primary school.

On the other hand as Richard Bryant points out in his excellent Blog Prudential are not completing documentation for annuities on wind-up where there are post 1990 GMPs.  Prudential seem to get it – gender equality has been a requirement since 1990 and however much the industry may complain it will have to be addressed.

As my colleague David Davison has written recently on GMP Equalisation – this is not a complicated issue and in my earlier article I set out the practical steps for trustees needed to bring about the equalisation of GMPs.

Equal means equal and any modern pensions payroll system should be able to accommodate this.  If trustees have accurate historic data and good administration software it is a relatively simple spreadsheet calculation.  If not then there may be approximations required to ensure inequalities are eliminated and these approximations may add to the liabilities which is part of the price to be paid for poor data.

Brian Spence is a founder of actuaries Spence & Partners Limited and a director of independent trustee Dalriada Trustees Limited.  You can follow him at @briandspence or @PensionsEndgame on Twitter or link to him on LinkedIn.

Follow @SpencePartners and @DalriadaTrustee on Twitter.

In earlier posts we addressed the issue of GMP equalisation.  Just to be clear – eliminating inequalities as a result of GMPs is not complicated or difficult or indeed costly when considering a member with a new pension coming into payment or a transfer value being quoted unless you are operating:

• Administration software that is not capable to making a monthly comparison between the benefit paid to a male member and on the other hand the benefit that would have been payable to a female comparator.  Our P3 pension administration software is capable of handling this.

  OR

• Actuarial software that projects only to the point of retirement and then applies an annuity factor. By definition an annuity factor cannot capture potential cross over between a male say and his female comparator.

We have developed our own in-house actuarial software that can handle this.

There are however two areas which can present genuine challenges:

(1) The period that has elapsed since the Barber Judgement on 17 May 1990. The data required to be able to identify underpayments is often difficult and in some cases impossible to obtain. In theory you need to be able to reconstruct a set of pension payments back to retirement and a comparator set of cash flows for a notional female to identify cumulative underpayments. This should act as a further spur to trustees to grasp the nettle and sort out their data.

(2) When annuitising (e.g. on buy-out or buy-in) the annuity providers cannot currently take on board equalised benefits because they do not have the systems to support this. For this reason in some recent cases where we have been involved we have used workarounds and made a broad brush allowance for GMP equalisation.

We do not think the Government is going to come forward with a single particular method. Any such method would not fit all schemes and would inevitably result in some members getting a higher benefit than “equality” would require. Schemes that have inadequate data or who are unwilling or unable to fix their inadequate software will have to adopt a “method” which will inevitably have a cost associated or they could appoint administrators and actuaries with the capacity to deal with the problem.

We had an enthusiastic internal meeting today about how to deal with Angela Eagle’s welcome clarification about equal treatment (pensions consultants actually get a buzz out of dealing with complex problems like this).

Many of Spence & Partners’ team felt that Read more »

At Spence and Partners and Dalriada Trustees Limited, we have long been espousing the value of good recording keeping in relation to pension scheme administration, particularly in our call for action in relation to pension scheme data.

We therefore strongly welcome today’s consultation from the Pensions Regulator (TPR) entitled “Record-keeping: measuring member data“.  We endorse the view that “Trustees and those responsible for administering workplace pensions will need to improve standards of record keeping”.

I was certainly less surprised than TPR by the fact that only 19% of schemes surveyed had checked that they had all the fundamental common data and that over half of the surveyed schemes were missing more than one item of fundamental data.  My experience would indicate lower “success” rates than this.

We further support the proposal for TPR to set, monitor and enforce target levels of accuracy for the common data that schemes must hold and will be interested to see how this area develops.

We note further that TPR intends to work closely with the Financial Service Authority to monitor record keeping in contract based schemes.

Finally, we look forward to further developments in this area and would encourage all trustees to look out for and undertake the soon to be published e-learning module on this subject.

As I stood with hundreds of other sheep at 6.00am this morning waiting to board my favourite low cost airline a number of thoughts struck me:

1. How good we British are at queuing and shuffling
2. How there is now even a class system in airline queues
3. What a great job my PA had done in getting me a really cheap flight before I tripled the cost by having to re-book last minute as a result of an unexpected change to my meeting arrangements
4. For how much of my day will I be relying on something that was bought for the lowest possible price

Now undoubtedly the last point is the most worrying when you’re just about to set foot on something that’s going to career along at hundreds of miles per hour thousands of miles above the ground but it was probably more related to a bit of work I was contemplating doing when I finally reached my pen (I mean seat!!).

Whilst some strategic cost cutting to win a bit of pensions work is possibly not quite as fraught with danger as airline travel (although BA might disagree!!) it will invariably have a similar impact on quality in the end and an outcome not dissimilar to my experience with number 3 above, namely having to pay considerably more in the end to fix what I thought I’d got for a bargain to start with.

We’ve written a lot in this blog about the cost/quality relationship in pensions administration, (“Pensions administration – the devil is in the data“) and the lack of value placed on scheme record keeping and hopefully there’ll be a drive for value and suitability, not just a continuing downward pressure on cost. Otherwise when you really need to find some quality it might not be there.

But then all in all who cares – as I got a window seat!!