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Data Cleansing

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Getting ‘transaction ready’ – you snooze you lose!!

Trustees have always been aware of the importance of accurate data for a scheme and their members, but data and data cleansing was always seen as far less interesting than funding or investment strategies. Historically, it was often at the bottom of a trustee’s agenda.
But not anymore!
The future of Defined Benefit pension schemes is changing fundamentally. Pension buy-ins and buyouts are on the rise and the future now looks very different for administrators as trustees and businesses look to decrease their pension scheme risks.

Trustees may not (yet) fully appreciate how important accurate electronically held data is, but the data required for performing ongoing administration does not equate in any way to the requirements that insurers need and demand to take on a scheme. Data quality is now therefore a critical issue for trustees.
Our experience has shown that the cost of securing benefits with insurance policies is often much cheaper for a scheme with comprehensive audited data and could potentially save up to 5% on the total insurance premium; a substantial saving that could make the difference between the transaction proceeding or not. And insurers are unlikely to provide an insurance quote if the data is of poor quality, so going to market with incomplete and uncleansed data is a waste of trustees’ time. And as time passes, so too does the market opportunities to transact.
This week, TPR reported that 33% of Defined Benefit schemes still held member data non-electronically and only 4% of Defined Benefit schemes have started to digitise the records needed for pension dashboards.  Schemes that are classed as Medium (100 to 999) or Small (up to 99) will have staging dates ranging from October 2024 to 2026, but that assumes that all members are classed as relevant members, so once pensioners are removed from the scheme’s headcount, staging dates for some schemes will be even further into the future.
In light of this, we would recommend that trustees avoid using their staging dates as the designated date by which to sort out scheme data. Trustees will rightly have no appetite to spend money on cleansing data that may be missing but has no bearing on the insurer’s premium, so prioritising which data to cleanse, such as verified marital status, is important too. We strongly encourage all trustees have a plan in place now to complete a full data audit and a gap analysis to understand what data needs to be prioritised, cleansed and digitised – so they are ready to go to market at any time.   If information deemed essential is missing, an insurer will make assumptions based on historical industry data to calculate the schemes liabilities, rather than the actual scheme data.
Besides marital status, another common example of missing data for mature Defined Benefit schemes is the expected spouse’s pension, which traditionally has not always been listed on a member’s record, nor calculated until a member dies.  Insurers now require this information to be held on all member records electronically. A data audit and cleanse are, therefore, imperative to highlight this type of critical missing data before a scheme goes to market.
In addition to marital status and spouse’s pension, pensionable salaries may be missing from the scheme data. It is highly unlikely that this is going to change the final pensionable salary retirement benefits so investing time and money trying to obtain this information should be considered less of a priority.
An example of this is a pensioner who retired from service in 2020 but has a pensionable salary from 1988 missing.
To be ‘transaction ready’ means a full review of the scheme documentation must be completed. Knowledge of the scheme design is also essential in your planning because a data cleanse is not just a ‘fill in the blanks’ exercise. Trustees and administrators must be mindful that during a data cleanse project questions may arise about historical calculations such as, “Were the calculations completed on inaccurate or incomplete data?”  Undertaking a sample benefit calculation against the Trust Deed & Rules will confirm the accuracy of the benefit data and completing a signed-off data cleanse will mean the necessary scheme data has been recorded (electronically).
Hence when planning for buy-in and buyouts the focus should be equally on scheme data and being ‘transaction ready’ so trustees can move swiftly to get the best deal possible when the opportunity in the market arises. We would caution trustees against delaying action until their staging dates. Or, as the saying goes, “You snooze, you lose.”
Julie Yates, Head of Administration at Cartwright.