The Pension Regulator DC Research report, published yesterday has drawn attention for its findings on value for money and trustee engagement with ESG, but the most worrying sections of the report are the least reported – namely the alarming failures uncovered by the research in DC administration. This is taken from the executive summary.
1.3.3 Fewer than a fifth of schemes regularly discussed administration at
board meetings, and a third had an administration strategy.
Overall, 16% of schemes included administration on the agenda at trustee board
meetings every quarter, although 74% did so at least annually. A third (34%) of
schemes had an administration strategy (rising to 57% of large schemes and 63% of
master trusts).
In terms of administration, schemes indicated that high priorities were meeting TPR’s
expectations (86% rated this as important), implementing legislative change (81%)
and addressing issues that impaired their ability to run the scheme effectively (76%).
Trustees typically became aware of new administration requirements via TPR, with
39% mentioning letters/emails and 14% the website. Other common sources of
awareness included the scheme’s administrator (21%) and legal advisers (15%).
1.3.4 More than a third of schemes did not measure7 the performance of their
administrators and the majority had little knowledge of their accreditations and
standards.
The most common methods of measuring administrator performance were testing
the accuracy of calculations (37%), auditing administration functions/systems (36%)
and assessing complaints volumes/trends (35%). However, almost half of micro
(47%) and a quarter of small (23%) schemes did not formally measure the
performance of their administrator (or were unaware of whether or how this was
done).
The majority of schemes had little or no knowledge of the accreditations held by their
administrators or the standards they complied with. This lack of knowledge was most
evident among micro schemes.
Overall, 8% of schemes had identified issues with the quality of their data in the
previous two years, ranging from 2% of micro schemes up to 50% of master trusts.
Three-quarters (75%) of those identifying issues had implemented a new or updated
data improvement plan or taken other action to address the issues in the last 12
months.
Has the Pensions Regulator the power to intervene?
As far as I am aware, TPR has very little in the way of regulatory powers to intervene on administrative grounds. Its powers to enforce compliance on auto-enrolment are clear enough, but these deal with the collection of contributions, not the ongoing record keeping.
But record keeping is vital to members for if there are mistakes with data, these can feed through to incorrect calculations of someone’s entitlement from the pension pot.
The three quoted measures for auditing administrative performance include checking calculations, systems and complaints – all high level and too easy to pass with a tick of a box. What is not going on are the kind of micro diagnostics needed to sense-check whether member outcomes tally with contributions paid.
There are two good reasons for this. Firstly trustees don’t want to turn over rocks to reveal scorpions and secondly there is no established way of diagnosing whether there are problems or not.
Without the power to force trustees to ask the difficult questions, it is hard to know how voluntary self-diagnosis of data quality will occur. Right now, most of the work on data quality focusses on issues relating to keeping tabs on the member (email, address and the identifiers needed for searches). These data items are important but are a lot easier to sort than identifying why contributions don’t tally with pot values. Consequently, work analyzing contribution histories tends to be put into the “too hard” box. If there are problems – nobody, not the Regulator, the trustees and least of all the member – knows about them.
If the Pensions Regulator cannot intervene and force a data audit based on reconciling contributions and net asset values, it is possible that a great deal of data, due to be displayed on the pension dashboard, will arrive unaudited and with the real possibility of being wrong.
Impact on the dashboard availability point
Until there is confidence in data quality, schemes will be reluctant to make data available to the pension dashboards and this will further push back the dashboard availability point.
Further into TPR’s report we get some interesting insights into what is driving the trustee’s administrative scrutiny
Administration is seen as a compliance function with meeting TPR’s expectations and implementing legislative change well ahead of improving member experience by providing online access. This is particularly the case with smaller schemes where less than a third considered putting member data online a priority
This suggests that small schemes have little intention of getting dashboard ready anytime soon and that scheme consolidation cannot come soon enough.
AgeWage experience
Our experience of analyzing data sets for the quality of data suggests that most schemes have some suspect data where contributions don’t seem to reconcile with pot values. Sometimes the problem is clear, the record has no pot value suggesting a transfer has been taken but we have seen data sets where transfers in and out have been excluded and others where the regular contribution records seem incomplete. Some of the suspect data rates are greater than 5% of member records suggesting a major data cleanse will be needed.
For many trustees this is the first time a problem has been diagnosed, though we suspect that many trustees have long suspected problems. We have spoken about the need for better diagnosis of data issues and the Pensions Regulator and the DWP have listened. Whether they have the power to enforce such diagnostics is open to question but one encouraging factor is that so long as trustees are prioritizing TPR’s expectations , it is worth TPR emphasizing the need to do this work.
