Record keeping – we know what to do but how do we do it?
Since the publication of the Pensions Regulator’s guidance “Record-keeping: good practice in measuring member data” in January 2009 and follow-up report “Record-keeping: measuring member data” in February 2010, there has really been no excuse for not knowing what prudent and responsible trustees and administrators should be doing on record-keeping and data management, but how do we go about achieving these “best practice” targets?
Remembering that it is the trustees who own the data, and who are ultimately responsible, it makes sense for them to put in place a strategy for record-keeping and data management in conjunction with their administrators, be they in-house or third party, which covers best practice for ongoing data maintenance and steps for auditing existing data and where necessary correcting or completing historic data issues by the December 2012 deadline.
Many schemes have developed their own data audit tools to validate their data and highlight areas where there are gaps or inconsistencies, or have engaged third-parties to undertake the work. For example, at MNPA we have developed Datum – a suite of data validations against which data can be tested and reported upon.
For some trustees, a data audit report is deemed sufficient as they can “tick the box” in having conducted an audit. But more perceptive trustees will see a data audit as an opportunity to create an action plan for data cleansing (perhaps as part of a wider de-risking initiative).
A well thought out data audit can:
- Demonstrate compliance with the Pensions Regulator's guidance;
- Provide a comprehensive understanding on the completeness and accuracy of all membership data;
- Create an opportunity to cleanse the data (if necessary);
- Enable accurate liability quantification for all beneficiaries leading to a more accurate actuarial valuation, directly impacting scheme financing;
- Provide the trustees with an understanding of any data issues which may impact on a future ETV, pension increase exchange or buy-in / out projects and associated premium costs;
- Help trustees gain confidence on the accuracy of entitlement calculations.
The Regulator wants three types of data – common data, conditional data and numerical data – to be tested for presence, completeness and accuracy.
Common data represents the eleven basic building blocks – name, sex, NI number, address, etc. – of sound record-keeping, irrespective of scheme type or category of membership. Conditional data represents those extra elements which may be specific to a particular scheme and are needed to enable accurate record-keeping and benefit calculation – for example, salary history or contracted-out service details. The Regulator leaves it to trustees and their administrators to assess these and set scheme-specific targets for completeness and accuracy. Numerical data looks at the membership of the scheme as a whole and helps put common and conditional data in perspective, and is largely represented by the type of information provided in “stewardship” type reports by the administrators to the trustees – such as the number of benefit categories, membership statistics, numbers of part-timers, etc.
The Regulator even suggests having an “electrical appliance sticker” type rating approach, rated A (very good) to G (very poor) to illustrate data presence and consistency. Customer-friendly though this might be, focus should not be lost on the prime objective of the exercise – to identify deficiencies and to put into action plans to make good these deficiencies.
The administrators – in-house or third party – have a key role in this of course. Through practical experience in using the data on a regular basis to calculate benefits they will know precisely what data quality is like – what is missing, what causes the most problems and what is a priority for rectification. They must be encouraged to disclose as much as possible, even if the deficiencies may have resulted from their past actions (or inactions). Trustees must be prepared to hear bad news: only with a complete picture can they put into effect a comprehensive plan for cleansing and correcting data.
Even where the data audit has identified issues and an action plan has addressed these, the Pensions Regulator expects ongoing measurement tests to be undertaken and reported back to the trustees on an annual basis. The Regulator recognises that data measurement forms part of a scheme’s risk assessment processes and provides evidence of the effectiveness of a scheme’s internal controls.
But there is no respite, even when the trustees have reached the promised land of a well-cleaned and complete database. The existing data needs to be properly maintained and tested, and the trustees need to ensure that new data is complete and passes appropriate validation and “reasonableness” tests. Oh, and an ability to predict the future also comes in handy: we know all too well that historic data and record-keeping standards that looked eminently reasonable at the time proved inadequate when successive governments introduced ever more complex regulation requiring data to be split and sliced in ways never envisaged at the outset. So it makes sense to ensure that the way data is held now is broken down as much as possible.
Very high standards are expected of new data recording. The Regulator envisages a stronger regulatory approach which adds “Enforcement” to the “Educate” and “Enable” of the original guidance, and trustees cannot afford to get it wrong.
Having gone through the exercise of identifying a comprehensive scheme-specific data framework which encompasses both common and conditional data items, the trustees and administrators will have the template for new data loading: the remaining element is the HR team and/or Payroll provider responsible for originating new data and updating existing data items like salary or contributions. Without their ongoing commitment and understanding of the objectives and importance of data quality, problems will keep recurring.
So what is needed? We have been strong advocates of direct electronic interfaces - payroll system to pension administration system – and of automated data loaders that undertake validation routines and generate immediate exception reports, so that discrepancies can be identified, bounced back to the payroll team and corrected without delay.
We also believe that it pays dividends for the administrator to agree detailed, robust and well-documented operating procedures with the HR and Payroll teams responsible for originating data, and for the administrator to train the HR/Payroll staff as appropriate so that they fully understand what is needed from them and the importance of their role in the overall success of record-keeping.
As mentioned earlier trustees need to remember that they own the data and therefore they have a responsibility to ensure that it is being stored, recorded and maintained correctly. They need to continually ask questions regarding their data so as to satisfy themselves that the guidance is being followed and best practice is in place. Often, data (and administration) features towards the end of a trustee meeting agenda either being seen as less important or less interesting than other topics. Given the importance that data has on scheme administration trustees need to ensure that it is given the sufficient airtime for discussion and understanding.
And do not forget the role that members can play in ensuring data is accurate. Increasingly, members are able to view their personal data through scheme websites. They can correct a wrong date of birth, update address and marital status, query a suspect starting date and generally help keep data valid and up to date.
So in summary, what are the key steps you need to take?
- Institute a data audit to find out the true state of records and data;
- If necessary, put in place a data cleansing exercise, perhaps using specialist tools or organisations to undertake the work;
- Identify a comprehensive scheme-specific data framework for common and conditional data items, to use as the template for new data loading;
- Regularly review the state of data and records;
- Ensure HR and Payroll staff responsible for originating data understand their roles, with documented procedures and service standards;
- Avoid human error where possible, by automating data exchange;
- Enlist your membership in auditing and updating personal data.
by Sue Applegarth
Managing Director