Compromising to achieve good quality data

Has administration ever felt as important as it does now, playing a pivotal role for so many DB schemes in the UK that are looking to secure their members’ benefits with an insurer? For many years, it was the forgotten component for most schemes, and administrators have looked on as the actuaries and investment consultants held centre stage at trustee meetings. More often than not, the administration report would be ‘noted’ and the meeting would move on. Some might say it just wasn’t sexy enough!

Acceleration towards buy-out

This position has been shifting slowly in recent years, with more focus on data, member experience and freedom of choice. Some of these aspects were beginning to get a mention on agendas and in meetings. However, the real game-changer was market turmoil towards the end of 2022, after which the time to buy-out was shortened for many schemes. Suddenly, there was a real opportunity for trustees and sponsors to secure their members’ benefits in as little as three years – something that had previously seemed out of reach for many schemes.

Quite quickly, attention swung to administration, particularly data. To go to market and receive quotations, schemes need data that’s ‘buy-out ready’; with the odd exception, no scheme was in this position. Furthermore, insurers are now in a position of strength, and can choose to transact only with schemes they find attractive. These are likely to be schemes with good-quality data. Insurers certainly hold the cards at present, and set stringent conditions for the basis and timescales on which they provide quotations.

Resourcing challenges are a barrier

The need for good-quality data has presented real challenges for administrators, at a time when the DB market already has skills gaps and resource shortages. Many schemes now focus on getting their data buy-out ready while dealing with GMP equalisation and Pensions Dashboards. Many trustees and sponsors want to take advantage of the opportunity to fully or partly insure their members’ benefits, so it really is a race against time to get that data sorted. The demands have been made, and administrators need to meet them.

Resource shortages mean that many schemes simply can’t deliver the data work while continuing to provide excellent business as usual with high service levels. In many cases, the same people are having to do both. Even where the administrator has a separate project team to manage and deliver the data work, that team relies on scheme knowledge held elsewhere. For example, all insurers require a legally signed off benefit specification, and someone with intimate knowledge of the scheme needs to review it against administration practices. Further, many of the data issues needing attention are legacy problems going back to the 80s and 90s – for example, franking and equalisation windows. Many of the people working on the data were not even born then, and many with this knowledge have retired or left the industry.

Compromise is the solution

Some difficult discussions are looming, or may already have started, between trustees and their administrator. With finite resources, are trustees willing to compromise on some of the day-to-day work, or scheme events, to allow priority to be given to data work? Clearly, they must deal with tasks with statutory deadlines, or member events such as retirements and deaths, but many more activities could be delayed or postponed so that data work can progress. Where insurers are only prepared to quote in a fixed window or with specific conditions, there's little room for negotiation.

After what feels like decades, this acceleration to buy-out, and in particular data readiness, has pushed administration to the top of the agenda for many trustee boards. With many schemes facing pressure from sponsors to de-risk, are trustees willing to compromise so they can use administration resources effectively to deliver on both data projects and the day-to-day member and scheme activities? Failing to do so may reduce a scheme’s chances of getting to market and positioning itself as attractive to insurers. Can anyone really afford to run this risk?

If you have any questions, or would like to discuss further, please get in touch.