Change the record

March 2010

The Pensions Regulator’s campaign on record-keeping and governance has been its most strongly worded to date. After a softly-softly approach last January when it gently suggested to trustees that they might like to improve the quality of their record-keeping, its follow-up consultation paper is taking a “comply or explain” approach.

Quite right too – the Regulator’s report gives more than enough examples of how poor record-keeping can almost derail a scheme: the PPF says that it needs an average of nine attempts to transfer a scheme’s data into its systems – hardly best use of the lifeboat’s time and resources. One buyout provider states that around 30% of the member records it receives contain errors, affecting estimations of scheme liabilities. An exercise on fixing spouses’ data yielded a reduction in valuation liabilities of £19m for one scheme – at a cost of £2,500.

While isolated examples underline extremes, the Regulator’s draft proposal for regulation aims to help fix more mundane day-to-day problems. But despite its tougher stance, it does not have the balance of effort right between the data it requires schemes to keep from now on, and what it requires them to do with legacy information.

The Regulator defines a set of common data that all schemes must hold on their members. There is then a set of conditional data that can also be held if the scheme feels it is appropriate. Unfortunately, some of the conditional items should be obligatory. For example, keeping track of whether each DC transaction matches each contribution recorded is essential – as is recording whether a DC member is enrolled in a lifestyle investment strategy, enabling the scheme to check if their savings are correctly invested. Similarly, recording the final pensionable salary for a DB scheme member should not be left to chance. Yet all of these are conditional.

Conversely, its new requirements for tidying up past records set trustees too great a task. Legacy or historic data now needs to be 95% complete. Attaining that level could be an enormous undertaking for large schemes that have been through several administrators and have migrated from paper-based data to digital systems. The cost of getting legacy data 95% compliant – and of having to set up a new structure to hold the common data – will be high. The Pensions Regulator believes that the cost could be minimal, but the pensions industry knows otherwise.

Ultimately the expense of improving record-keeping overall must be borne for all manner of reasons – among them the risks of not doing it. But the emphasis must be in the right place, and at the moment the Regulator is too focused on the past, and too liberal with the future.