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Are we in the midst of the next data quality disaster?

13 November 2015

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Dennis Mincher looks at potential problems for pension administration caused by new legislative developments.

The Pensions Regulator ('tPR') has been pushing the issue of data quality for years and continues to do so, through their thematic review of scheme record-keeping for example.

Maintaining data quality requires scrutinising (testing for accuracy, completeness, reliability and consistency) the data set periodically and rectifying data where needed. Various rectification tasks may include updating, standardising or de-duplication.

Since tPR started pushing their data quality agenda in 2010 there has been a reasonably positive response from pension scheme trustees, with 83% of surveyed schemes having completed a data audit at least once in the past five years.

However, over the same period of time, the legislative environment across the UK pensions sector has experienced a rapid succession of changes.

While many pension scheme trustees have reviewed their scheme data quality and perhaps even taken steps to rectify the issues that existed, the new legislative developments could be creating a host of new problems for pension scheme data and pension scheme administration operations.

In particular, pensions freedom and auto-enrolment have introduced the need to hold and process new data for many pensions schemes and the scope and scale of these new requirements mean that the only way to effectively manage them is through the use of dedicated systems.

The processes involved with the new pension flexibilities available to members with Defined Contribution ('DC') benefits mean existing systems may struggle to cope.

Various actions such as partial Defined Benefit ('DB') to DC transfers and flexible drawdowns may not be properly recorded on systems.

The issue here is that the fields and calculations required for any potential new inputs don't currently exist and the necessary system development could be difficult or out-of-scope, and the implications of this could be disastrous.

If all this new data is not properly recorded at the time of processing, it could be lost completely or issued with unchecked errors that could create problems for trustees and members alike.

Vital decisions will be made by members based on the information provided to them, and members will need to be able to use that information to fully access and understand the guidance available from the government-backed Pension Wise guidance service.

Inaccurate records will impact on the information provided to the member and consequently their understanding and application of the guidance and information available.

In turn this may lead to the member choosing a retirement option that is not right for their circumstances and which could affect them and their dependants for the rest of their lives.

The alternative to updating existing systems is to develop new systems. However, the development cycle for a new pension scheme administration system is typically measured in years, and such projects are complex with high associated costs.

Many insurers have been slow to offer new products and services to their customers following the advent of the pensions freedom flexibilities.

One of the reasons cited by insurers to justify the lack of greater flexibilities, is that they have not received adequate support in order to develop systems that can deliver the proper information and protection that consumers should expect in making choices about their retirement options.

Beyond the software development world, users of third-party systems are often faced with large scale implementation and data migration projects should they wish to upgrade or change their systems.

As a result of this, there is a desire among system providers and system users alike to ensure that their pension scheme administration systems remain relevant and fit for purpose for as long as possible.

Therefore, the choice between switching to a newly developed system, or sticking with an existing system and pushing for functionality updates is fraught with risks on both sides.

Making the wrong choice in the short term could have costly repercussions for both the long-term operation of the scheme and the delivery of a quality service to scheme members, especially if more legislative changes occur in the future.

If the new changes really are creating data issues that are pushing us toward a data quality disaster, we need to be extra vigilant to ensure the correct systems and processes are in place to guarantee good record-keeping now and in the future.

Written by Dennis Mincher, business analyst,Veratta.