Julie Walker explains how administrators are preparing for The Pensions Regulator’s common data requirements deadline

Like many industry insiders, Barnett Waddingham has long speculated that an unhappy regulator would be a legislating regulator. With the clock ticking in the final few weeks for the regulator’s common data countdown and the regulator keeping its ‘implications of non-compliance’ cards very close to its chest, the industry is buzzing with educated guesswork around the contents of the 2013
Scheme Return, suggesting 31 December, may bring a less than happy new year for those schemes failing to embrace the common data challenge.

Fighting to be heard
In a very crowded pension arena record keeping has struggled to make enough noise to be heard. Out in the ‘adminisphere’ administrators and consultants have fought to keep this subject on the trustee agenda but competition for trustee attention has been intense. Dropping into the midst of a global economic and funding crisis, coupled with an incredibly full regulatory and administrative calendar that includes abolishing DC contracting-out, implementing a fairly massive overhaul of annual and lifetime allowances and preparing for auto-enrolment, these not-very-ambitious common data targets were often drowned out by their more attention grabbing rivals.

Counting the cost
Cost is a factor in any new development and has been a significant obstacle in obtaining trustee engagement with data quality issues. The regulator’s own fairly sweeping under-estimate of the costs involved in data reporting and management set a strikingly low estimated per-capita reporting cost. Across the industry third party administrators (TPAs) invested heavily in developing and configuring software and reporting systems to interrogate data and extract regulator-styled results, absorbing much of the development cost with relatively little of the actual cost passed onto schemes. Those TPAs running their own proprietary software systems had an advantage in that they could dictate their own development schedules whereas TPAs or in-house schemes using third party software missed out on that vital flexibility and economy of scale.

Those trustees who were reluctant to meet upfront costs by fully engaging with the data targets and refused to make the minimal investment needed to get where they needed to be in 2012, may be about to find out that 2013 brings costs that can’t be avoided. Speculation that data quality results might be a mandatory part of the 2013 Scheme Return naturally leads us to wonder what the regulator might do with the information – penalties and levy loading have both been mooted but, at least until the next round of Scheme Return hits in early 2013, we can only wait to see what form ‘enforcement’ may take.

The ‘too easy’ effect
The regulator is 100 per cent right in its position that poor data is a major risk area for any scheme – better quality data leads to better benefit administration, more realistic valuation results and more informed funding discussions. One major issue in the common data targets though is their apparent achievability – hitting 95-100 per cent targets in 11 basic data items seems doable. The problem is that, in practice, these basic data items don’t actually do very much and certainly not enough to make a material difference in benefits administration or funding. Unfortunately, with the regulator apparently setting the bar so low with this first set of data targets, trustees, perhaps rightly, suspect that when it comes to passing the pension test, meeting the common data standards is equivalent to ‘bringing a pencil’ – the real A* work will be in measuring and rectifying scheme conditional and numerical data, making the time and effort required to meet this first set of targets a tough sell in tough times.

Putting data management first
Eventually every scheme will need to engage with the regulator’s data requirements but this shouldn’t mean that the regulator’s minimum data quality standards are a substitute for pro-active and coherent data management. Although a huge step in the right direction, a regulatory box ticking exercise can never stand in for a considered and scheme-specific approach to data management. Any forward thinking trustee board knows that a solid data management policy, operating within a robust governance framework, is absolutely key to scheme management – if funding and benefit structure are the architecture of the pension scheme data management is the solid foundation underpinning the whole structure.

Written by Julie Walker, associate at Barnett Waddingham

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