The Pensions Regulator has kicked up a gear with proposals to stamp down on poor record keeping (see the Regulator’s February 2010 consultation paper on record-keeping, and here’s a good summary). Having spent time poring over the detail, I find myself torn on whether this is a good thing or not. Wouldn’t the world be a better place if all trustees had all the data they needed to pay benefits now and in the future and if records actually reflected people’s rights? But is it actually possible? And if it isn’t, does that mean that the world is wrong or the target is wrong?
I have been privileged to work with a lot of splendid pension schemes over the last…ahem…decade or two. Schemes with trustee boards determined to do the best by their membership, and willing to pay top notch advisers to help them do it. And yet I don’t think I have ever met a scheme where nothing is wrong with their membership data. There are always gaps, information that wasn’t gathered or collated fully at the time. There is usually at least one box of paper records that has gone missing when administrators have changed or the business moved sites. One box? I am being kind. Scheme merger or two? Forget it.
And these are the good schemes. Poor data is inevitable in any scheme which has been running for more than say the last decade, and even the newer ones end up gathering legacy problems on mergers. But is this parlous state (a) surprising, (b) fixable?
One reason for historic problems is too much reliance on the employer’s HR and payroll systems. After all, the pension scheme is and was just another employee benefit. Employee records are set up for completely different purposes and aren’t really designed to last. Once the employee leaves the firm, that’s pretty much that. As an example, why keep records of which employer employed the individual at what time? Now, of course, we need to know all the past employers for employer debt calculations, PPF entry requirements and so on. Who could have expected that 20 years ago? For employment purposes the identity of the current employer is what counts.
Turn to pension schemes and it’s a different kettle of pensioners. Scheme members live for ever (or seem to) [note: this is not actuarial advice]. Getting internal systems geared up right for active members therefore becomes an economy, not a cost, but getting that right for the future doesn’t fix the past.
Parliament has already recognised the problem. One of the reasons the employer debt regime had to be overhauled a few years ago was specifically to build in some space to fudge calculations when the data simply isn’t there, or isn’t robust enough to be reliable. It isn’t a question of “must try harder” – you can dig around all you like and a lot of the information still won’t turn up. So is the Pensions Regulator going after the right target?
I want administrators to focus on the problem properly. Why aren’t they telling their trustee clients if they have gaps? That’s not an extra service surely; that’s doing their job, isn’t it? The strength of data should also show up in the audit process. As a lawyer, and a purist, I also struggle with how a trustee can satisfy a legal duty to pay benefits without knowing enough about a member to get those benefits right. So sending a strong message of “must try harder” must be right. But when I see proposals to target 95% compliance with data standards for legacy data, and 100% for new data, it feels unrealistic and pointless.
What’s the right answer? Ask everyone nicely to comply? The Regulator tried that and it didn’t work. Set an impossible target and slap fines on everyone? Seems a bit unfair (almost a tax). Give up on legacy and focus on getting new systems for 2012 and beyond? Surely we can’t condone a complete lack of interest in getting data right, but I’m not convinced simply dropping the target a bit would work either. The world is wrong, and I am struggling to find the right target to make it a better place. I think the Regulator is too. Ideas on a postcard to ….?
Giannis Waymouth is a senior professional support lawyer at Allen & Overy LLP.
Print This Post
