Posts Tagged ‘Data’

Alan Collins

The clock ticking down to the end-of contracting out is getting louder and louder.  With just over a year to go, many trustees and administrators are getting their houses in order by completing the reconciliation of their records with those held by HMRC.  However, many more are not.  A recent estimate indicated that, on average, around 5,000 data queries a day would need to be resolved in order to complete reconciliations in the desired timescale.

For contracted-out schemes that are already closed to build up of future benefits, there are no excuses for brushing reconciliation exercises under the carpet.  Schemes which are open to accrual can also progress matters in advance of the end of contracting-out on 6 April 2016, using HMRC’s Scheme Reconciliation Service.

This is an exercise that must be done and trustees and administrators should take immediate action to complete any outstanding tasks.  The resource in an already stretched HMRC team will wither on the vine from 2016 until December 2018 when all individuals will be written to confirming their contracted-out pension entitlements.  Failure to act now may leave schemes carrying additional liabilities which they cannot prove belong elsewhere.  It is therefore also in employers’ interests that trustees complete the required tasks. Read more »

Neil Copeland

American author Chuck Palahniuk has written a lot of things. “Maybe humans are just the pet alligators that God flushed down the toilet”, for example. Or “All God does is watch us and kill us when we get boring ” The latter quote being of particular concern to my actuarial colleagues.

He also wrote “any behavior that is not the status quo is interpreted as insanity, when, in fact, it might actually be enlightenment.”

Everyone knows the pensions data status quo. Poor data, incomplete data, inaccurate data is rife… Yet when I make the, what seems to me entirely obvious, link between poor, incomplete data and a poor administration experience for trustees and members, the number of people who appear to fail to see that link leaves me uncertain as to whether I’m insane or enlightened. Well, it doesn’t really. I’m pretty clear that I’m enlightened, at least on this matter. Read more »

Mark Johnson

Spence & Partners latest blog for Pension Funds Online –

With pension liberation fraud, auto enrolment and the defined contribution (DC) code and guidance, data appears to have been put on the back burner – for the time being at least.

In a press release in December 2013, The Pensions Regulator (TPR) said it intends to review its record-keeping guidance during 2014, but it is still unclear what this will bring.

Without good quality data the industry cannot seek to improve accuracy and efficiency in any area of work carried out, be it a retirement settlement or a triennial actuarial valuation. Data is, and always has been, the foundation that the industry is built on; if this is suspect then how can we expect it to hold up to the test of time? Read more »

Will Davison

Spence & Partners, the UK pensions actuaries and administration specialists, today commented that the recent news surrounding the availability of real-time valuations is a welcome step towards the delivery of a more pro-active service to pension scheme trustees and sponsoring employers, but that progress will be hindered if the link with scheme data and an audited benefit specification isn’t strengthened.

Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “The facility to undertake daily valuations and become more responsive around the scheme’s funding position will certainly benefit trustees and sponsors in the management of legacy defined benefit schemes. It is absolutely right that trustees should expect to receive real time liability information. This is something we have been doing with our clients for a few months now and they have responded very positively to the streamlining of the process. We are therefore pleased to see the development of other such services being announced in the industry. Read more »

Kevin Burge

This is our latest blog for Pension Funds Online –

If you have ever been to India or watched The Best Exotic Marigold Hotel film sequence where their bus drives straight at the oncoming traffic, you will know that ‘driving rules’ are few and far between.

The basic rule is not to hit anyone and certainly not to hit any of the many cows, which are sacred, that wander the roads and who always have right of way.

I recently returned from holiday in Rajasthan and had an interesting conversation with one of our guides. Motorbikes are only allowed two people on them – well most have three and many have the whole family; you can only overtake on the right-hand side of a vehicle – they overtake any which way they can irrespective of bends in the road, oncoming traffic etc.; you cannot use a mobile phone whilst driving – virtually every driver uses the phone including those on motorbikes.

This made me think about the data issues that face pension schemes. Read more »

Alan Collins

With recent market turmoil sending scheme funding levels tumbling, pensions present a potential Pandora’s Box for even the most enlightened Finance Director.

In this month’s issue of CA Magazine (pg. 56) Alan Collins, head of employer advisory services at pension actuaries Spence & Partners suggests 10 key questions that Finance Directors should be asking themselves about their defined benefit schemes and some guidance on each of these key issues.
Read more »

Greig McGuinness

GMP, Guaranteed Minimum Pension, the great invention to irritate pension administrators and make our lives more complicated than they have to be. Now you could be forgiven for expecting that following a couple of rounds of “simplification” and the cessation of GMP accrual from 1997 that GMP would be a problem of the past, with the number of non-retired members with a GMP element to their benefits gradually dwindling year by year.

Alas, just as we thought everyone had forgotten about Angela Eagle’s announcement last January, out come the DWP with proposed legislation and methodology for the equalisation of GMP. We could debate as to whether there is a legal requirement under European Law to equalise GMP at all, with some arguments against including GMP merely being a benefit underpin or that it is a quasi state benefit and therefore exempt.

My own opinion would be that there should be no Read more »

Tom Nimmo

Testing the boundaries

It is now over twelve months since the Pensions Regulator (tPR) published its Guidance on Record Keeping. The guidance emphasises the importance that tPR places on scheme data quality. For many in the industry, this publication merely confirmed what they already knew – that the member records for most schemes were in poor health, but very little was being done to tackle the problem.

With this guidance tPR did more than just mention the elephant in the room, they shouted about it for all to hear and addressed a warning to those who thought that they could continue to ignore that pesky pachyderm. The message was clear: scheme member data needs to be audited and brought up to a prescribed standard before December 2012. Read more »

Alan Collins

I came across an interesting panel discussion in the current issue of Engaged Investor Magazine, where a number of industry experts were asked for their views on developments in pension scheme de-risking. My views on the questions addressed are as follows:

Q1 – Many companies are not able to carry out full buyout in one go. What multi-layered approaches can they take to de-risk their schemes?

The most important first step is for the employer and trustees to agree a common goal for the scheme. In almost all cases (especially closed schemes), the ultimate goal should be to secure all benefits with an insurance company and wind-up the scheme.

An agreed, transparent objective will then set the path towards the ultimate goal. There are many alternative partial de-risking measures that can be taken, most of which can work in parallel. These include employer led exercises such as:

  • a transfer exercise, offering members the opportunity to transfer their scheme benefits to an alternative arrangement via an incentive in the form of an increased transfer value, or sometimes a cash payment; or
  • a pension increase swap exercise, where members give up future pension increases in return for a higher initial pension.

These exercises can generate significant savings to the employer relative to the ultimate cost of buyout. They are unlikely to generate significant immediate savings on ongoing funding costs or FRS 17, though they do contribute to reducing the risk profile of the scheme.

These exercises can be run in tandem with providing opportunities to members to retire early from the scheme, which can generate savings on cash commutation and also insurers prefer the “certainty” of pensioners rather than deferred members. In conjunction with the company, the trustees can also move towards a lower risk investment strategy, using bonds or LDI type investments, and also consider partial insurance such as pensioner buy-ins. I would caution that for schemes with young pensioners or where the pensioner group makes up a small proportion of the liabilities, it may not be efficient to use significant resources of the scheme to obtain insurance covering only a small portion of the liabilities. There are also opportunities developing in the market to enter into a staged buyout process with insurers, where the terms are agreed up front but the whole premium is not required at the outset.

Nor should the trustees overlook the potential for non-cash funding, such as parental guarantees, contingent assets or “asset-sharing” with the company, such as the whisky-bond deal completed by Diageo .

Q2 – In what ways did trustees’ de-risking choices change during 2010?

The choices remained broadly unchanged, though it was a year of massive change in defined benefit pensions, particularly on the legislative front. The single largest issue was Steve Webb’s RPI/CPI summer bombshell, which is expected to have a significant effect on pension scheme funding. Most schemes are expected to see a reduction in liabilities of between 5-15% depending on the nature of the scheme rules.

This meant that larger exercises tended to be shelved as trustees waited for the full impact of the change in inflation measure to come through. I would say the introduction of innovative non-cash funding solutions and the focus by trustees on obtaining enforceable security was the other main development in de-risking.

The emergence of longevity swaps was supposed to be the big-ticket item for 2010, but this remains the preserve on the very largest of schemes and I don’t see that changing any time soon.

Q3 – What early steps, such as data cleansing, communications and legal considerations, should be undertaken before entering into a de-risking activity?

The quality of pension scheme data can be highly variable. It can be held in multiple formats, for very long periods of time and is often subject to major change (e.g. after mergers, systems migrations, legislative changes). When entering a liability management exercise and moving ultimately towards winding-up a scheme, every effort must be made to ensure that members have the correct pension entitlement. The key message on data is that full and accurate data will reduce the cost of staff communication and liability management exercises as well as ultimately buying annuities as it helps to reduce underwriters’ pricing for uncertainty.

The communication process is also vital, both between the employer/trustees and the member. Possibly even more important is the communication between a financial advisor and the member during an employer’s de-risking exercise.

The need for proper legal input almost goes without saying, but the emergence of the RPI/CPI issue and continued problems with sex equalisation and other scheme amendments, mean that assistance from your friendly pensions lawyer is a necessity, not a luxury.

Neil Copeland

I’m thinking of founding Administrators Anonymous. A bit like Alcoholics Anonymous but for those trying to wean themselves off final salary pension schemes.

My Doctor did once ask me if I had a problem with alcohol but I explained to her that, on the contrary, I really quite liked it. However, I did come across an article about Alcoholics Anonymous the other day, as you do, which quoted the Serenity Prayer and was immediately struck by the latter’s applicability to pension scheme trustees.

For those of you not familiar with the prayer, they key part is reproduced below.

Grant me the serenity;
To accept the things I cannot change;
The courage, to change the things I can;
And the wisdom, to know the difference.

It seems to me that trustees and employers spend inordinate amounts of time and money on having actuaries and consultants run all sorts of models with all sorts of assumptions, fretting about risks over which they have no control. For example, neither trustees, employers nor their advisers have any real control over future investment returns, future inflation, future legislation, future life expectancy or the future security of sovereign debt. I’m not suggesting for one minute that trustees should blithely ignore these risks – clearly they need to assess and understand them – however, trustees seem to be less engaged with at least one serious risk over which they do have control and which they can change.

Data.

Trustees – serenity, acceptance, courage and wisdom are needed here and needed now! We’ve blogged on the consequences of poor data before, but to recap, without accurate data all the actual valuations and investment strategies you can think of are seriously flawed. Incorrect or missing data impacts on all key areas of scheme management. If your data is poor, that funding plan that you’ve agonised over with the employer isn’t worth the paper it’s written on.

So I’ve come up with a 12 step programme to help trustees cope with their data problems based on the principles that have helped alcoholics, gamblers and sex addicts successfully confront their various demons over the years.

DISCLAIMER No inferences about my personal proclivities should be drawn from the entirely random set of addictions noted in the previous sentence.

12 Step Programmes invariably invoke a higher power for assistance, which in this particular context, is clearly Spence & Partners. Bearing that in mind, the 12 Step Programme for trustees struggling with data demons would look something like this:

  1. Admit to yourselves and Spence & Partners that you have a problem
  2. Believe that Spence & Partners can restore your data to an acceptable level
  3. Make a decision to turn your data over to Spence & Partners
  4. Make a searching and fearless inventory of your data and its shortcomings
  5. Admit to Spence & Partners, to yourselves, and to your current administrator the exact nature of your data problems.
  6. Be entirely ready to have Spence & Partners remove all these defects in your data.
  7. Humbly ask Spence & Partners to remove your data shortcomings.
  8. Make a list of all members harmed by your incorrect data in the past and be willing to make amends to them all.
  9. Make direct amends to such members wherever possible.
  10. Continue to review and maintain your data and when you find it is wrong promptly admit it and correct it.
  11. Through monitoring and review continue to improve your data, seeking guidance where necessary from Spence & Partners
  12. Having realised as the result of these steps that your data was deficient in the past , tell others about the tremendous change worked by Spence & Partners on your data quality, and see what other areas Spence & Partners can help you in

As always with these self help programmes, Step 1 is the most difficult, but you will feel so much better about yourself for having taken it.

There is a serious point to this – there usually is to my ramblings but sometimes it is extremely well hidden. Trustees and administrators (and, whisper it quietly, despite the 12 Step Programme outlined above the latter doesn’t have to be Spence & Partners) need to engage and have an honest discussion about scheme data and how it can be improved. It’s no longer an option to sweep this under the carpet. For a more considered assessment of how trustees can really take control of their data and comply with the Pensions Regulator’s guidance in this area see our previous blogs on the matter or contact my colleague Mark Johnson or I to discuss our Pensions Data Service .

And finally, a couple of hydrogen atoms walk into a bar. The first says, “I think I’ve lost an electron.” The second says, “Are you sure?” The first says, “Yes, I’m positive…”

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