The most common issues for schemes looking to buy-out are, generally, around overall quality and consistency of the data held.
Almost inevitably a mature pension scheme will have accumulated a lot of historical data which has then been stored in many places, in many ways and by many people.
This means it’s all too easy for the overall picture of benefits and liabilities to become uncertain, at least for certain categories of members. Often this manifests itself in relation to issues around the calculation of secondary or contingency benefits (i.e. member marital status, pre-commutation spouse entitlements, spouse dates of birth) or awkward or complex benefit terms (i.e. GMPs, bridging pensions or special and non-standard benefit categories). Running a pension scheme at the best of times requires a combination of lots of money and lots of data. And certainly in terms of buy-out options, the less you have of one, the more you will need of the other!
Regular monitoring and maintenance of your data can address most of these problems and often for a very modest ongoing cost. A good place to start is to engage with your TPR record keeping scores around common and scheme specific data items. It is important to be able to ask the right questions to get a sense of what you have and understand what you need to have. Often, measurable improvements can be made fairly easily over time as an added benefit of ongoing good administration practice, without the need for large scale retrospective exercises, which can add unnecessary costs and delays to a buy-out project.
Why do insurers require more data than typical third-party administrators?
One thing to be aware of is insurers will typically require more data than third-party administrators – this is largely due to timing. Third party administrators have the benefits of time and an ongoing client relationship, giving them access to both the scheme’s sponsoring employer and trustees. Issues can therefore be dealt with sequentially as and when they arise in a pragmatic and targeted way through specific project work. However, for an insurer at buy-out, immediacy is everything. They are being tasked with guaranteeing the future of every member simultaneously at today’s date – that’s no mean feat. Therefore, the scale and depth of data they require to satisfy their underwriters can seem daunting in comparison.
Ultimately trustees should be asking themselves… ask not what your data can do for you, ask what you can do for your data?! Preparation is everything. Take an interest in the wider data issues and data health of the scheme. Engage with your scheme administrator to ensure your benefit specification is comprehensive and up-to-date and your database is a match for it in terms of each benefit payable. Understand what you have, how and where it is stored, and what it is telling you about any potential problems that certain missing or uncertain pieces of information may cause.
If you feel that your scheme administrator is not supporting you on this journey or that their performance in the management and understanding of what is after all, your data, is not helping your longer term aims, don’t be afraid to ask questions, or even move your database to a new scheme administrator. If the data has been stored correctly on a bespoke pensions database there should be no obstacles to it being transferred efficiently and in its entirety in a timely manner. As such it should not be a costly endeavour, and in fact the cost of doing nothing, in the longer term, could be far higher for both you and your members. So, beware of inertia for fear of high exit costs as they might be unjustified and can often be successfully challenged.
Continuing action, rather than inaction, and ongoing incremental improvements can pay dividends way beyond their immediate or accumulative cost. If you want to have data stored and understood in a way that will give you options, thus saving you time and money when your market/ funding buy-out position looks favourable, think ahead, start small, and start now.
Matt Elguezabal leads Quantum Advisory’s administration projects team
