“In pensions we trust” – when our data is trusty! | AgeWage: Making your money work as hard as you do

Yesterday I talked about how we can performance analysis of individual pension pots to sense check the quality of data. The idea is to make sure that once contributions reach the pension provider, they are properly recorded and people can be confident that what shows as their “pot value” is an accurate record of their entitlement. Great effort is made to ensure that we have data on all the costs and charges that impact the investment of that pot and fund managers go to meticulous detail to assure us they are seeking out value in every way known to man and woman, but what good is it if the people keeping records get it wrong and a chunk of your pension entitlement goes missing?

This is the stuff of pension governance and is the responsibility of trustees , IGCs but ultimately those who provide the data. We, who are the beneficiaries of their work, pay fees for that work to be done properly, so it is proper that we ask for accountability on the quality of the data. So far so good.

However…

Two of my good friends, Bob Ward and Ros Altmann have commented on yesterday’s blogs , at length and in great detail. Each of these comments could be a blog in itself and so I’m republishing them below.

The point they are each making is that the problems we may have in trusting our pot values begin before the contributions ever reach the provider and are generated by faulty contribution calculations. Both Ros and I have written extensively about the failure of Government to pass back the Government incentive (representing a boost of 25% to personal contributions, to low earners in net pay schemes. If you haven’t got the message, just key in “net pay” into the search box on this blog, this is a fundamental fault in contributions.

But both Bob and Ros point to work done by organisations such as PensionSync which suggest that contributions originate from employers who may not be competent in their computation or (in some circumstances) deliberately short-change us. The point is that it is a very easy mistake (or crime) to get away with and the “unknown unknowns” are potentially very high. I accept that these problems exist, though as yet there is no way to properly measure to what extent.

However, since the vast majority of payroll is automated, the simplest way to start is to check that payroll software design is correct and that they include fail safes to ensure that what is promised is paid (even if the promise is no more than the statutory minimum.

This branch of data science is aligned to what I was discussing yesterday but deals with a different stage in the value chain. For savers it is of course leading to the same end, the trustworthiness of our pension account. In the past we have had to take it at our provider’s word , that the figure displayed in our pension pot is right, but now we have the right to access our data, we can demand more. We can and should be able to demand proof that our employers have been paying over the right amount just as we should demand proof that our providers have been recording and displaying the right amount.

Accountability through data

Let me give you an analogy about how a matter of accountability can be fixed by data. I, like millions of others have been worrying about the carbon emissions I am responsible for from my car, my home and the devices I use to download information. Here is Centrica – my energy supplier showing me how they can put me in control of the amount of energy I consume through showing me information on how energy is flowing and where it is being lost.

I agree with my gas supplier that by sharing data we can give power to people to do things better, whether in power or in pensions.

It is with Government to ensure that data flows properly to make those who we pay to manage our money accountable for its management and I hope that Government will start adopting some of the technology which is available to them to sense check data at a macro level. But it will only be when ordinary people, like you and me, start demanding accurate data – and validation of its accuracy , about our pensions that we will make our pension providers properly accountable.

It is not enough to rely on trustees, IGCs and other fiduciaries , ultimately we have a responsibility to make this happen for ourselves. We need to keep pushing for more data, more accountability and more transparency in all aspects of the data supply chain. If we don’t ask – we will not get.

Ros Altmann’s comment on yesterday’s blog

Dear Henry

It is great to see the increasing recognition of pension data errors and calls for reconciliation.

The data problems, however, are far more widespread than just ‘outliers’. As you rightly say, where manual processes have been involved for many years, hasic errors in the original salary records, in the calculation of accurate contributions, and even in dates of birth, names and addresses, have resulted in a growing backlog of problems that have never been properly identified, let alone corrected.

Even with auto-enrolment, we saw at pensionsync that small firms using manual payroll entries, would even have incorrect tax relief applied due to confusion around Net Pay and Relief at Source. The complexities of pension rules mean that most people cannot know for themselves whether their pension contributions are correct, they rely on their employer or pension company to have the right figures on their behalf.

This is very different from ‘open banking’ where you know how much you have paid in to your bank and can see if the amounts shown on your statements are incorrect. If you pay in £20 and the statement says you have £18 in your account, you can see it is wrong. But if you had no idea what you paid in and the statement shows you have £18, you simply will not know it is wrong. That is how pensions are for most people.

Over the years, and even since 2012 with auto-enrolment, records have been ‘assumed’ to be correct, with no regulatory demands for accuracy checks required, no mystery shopping to select random samples that could pick up errors. Indeed, pension providers often have no idea what each member’s pensionable salary was each month, which means the checking is required at the employer or payroll administration end.

Yet, it is really vital that pension schemes check all records, rather than just the extreme cases, otherwise the information on the Pensions Dashboard is unlikely to be sufficiently reliable. This exercise could and should have been started years ago, but sadly we still await it.

When it starts, it will be a huge undertaking and we have seen with GMP reconciliation that the problem magnifies over time, costs huge sums and takes years. The longer it takes to start the process, the longer records remain incorrect.

I do hope the Pensions Regulator and Government will finally force all schemes to prove they have taken this issue seriously, that annual data checks are made and reported to Regulators to confirm that contributions have been verified and introducing digital connectivity would be a major improvement for auto-enrolment, that can reduce manual errors.

I did try to get amendments in the Pension Schemes Bill in 2017 and in the current Bill, but these were rejected I’m afraid. If data are not reliable and have not been reconciled, then I can’t see how using a Pensions Dashboard can ultimately ensure consumers ‘know’ what their pension position is.

You’re absolutely right, schemes need help with data, but the problem is far wider than just ‘outliers’. The extreme cases are much more readily identified, but the small errors compounded over time can also make pension records worrying inaccurate.

Bob Ward’s comment yesterday

I follow the line of Ross Altmann and agree there are wider issues here. However, what is missing from the case is ‘inertia creep’ – a term I use to explain the loss of intentions for integrity of systems and meeting Statutory and Contractual obligations.

The AE legislation puts the onus fully on Employers for ensuring they comply with the legislation and perhaps you are nearly right in that Administrators / Providers are not responsible for Employer / payroll errors.

However, time and again in our industry, those involved are blinkered to think they only have to comply with the simple pension legislation but that is NOT the case. Master Trusts and contract based Providers are obliged to declare to tPR that they have checked that participating employers are complying with AE rules and if not they must report the Employer. The only way to do that is for ALL providers to sense check contributions against the AE rules and pensionable earnings provided by the Employer (i.e. earnings x AE contribution %).

When configuring their systems in early AE many providers took the decision it was too difficult to check contributions and hence pushed the assessment back to the Employer’s payroll. That way the Providers have not carried out assessment calculations. They therefore may now adopt the stance of accepting the contributions given without rechecking that even the amount meets the above calculation.

Consequently, Providers are not meeting the AE Codes by not physically checking the Employer figures.

Inertia sets in with everyone thinking all is ok and that the Employer takes full responsibility and tPR does not seem to be drilling down on verifying exactly what is being checked. If such errors are found in the future the Providers will be equally responsible by not meeting the due diligence standards.

Transparency – it’s how the light gets in