Record-keeping: Sackers’ response to consultation

Background

The Pension Regulator’s proposals for addressing issues of poor member record-keeping are set out in the consultation document which was issued on 2 February 2010.

We recognise record-keeping to be an important part of TPR’s statutory objective to “promote, and to improve understanding of, the good administration of work-based pension schemes”.  As such, we support the aims of the consultation.  However, we have some concerns relating to the proposed focus of the Guidance and how TPR’s record-keeping objectives will be achieved.

In particular, we agree that it may be reasonable for TPR to set specific targets in relation to new member data and in respect of active members, although legacy data may need to be dealt with separately.  However, it should be acknowledged that even in respect of new members, there may be difficulties with storage of personal information as it is protected by the overriding data protection legislation.

In this response:

• Adoption of the guidance
• Aims of the Guidance
  
• Structure of the Guidance
• Costs of compliance
• Record-keeping and electronic disclosures

Adoption of the guidance

We note TPR’s concerns that take-up of its 2008 Record-Keeping Guidance (the Guidance) has been low.  While TPR is right to monitor the situation, it should take account of the fact that the Guidance has only been in place since December 2008, and that it takes time for systems (both those relating to a pension scheme’s internal records and those of third party administrators) to be updated in line with the Guidance.  In addition, paragraph 5.8 of the Consultation notes that TPR “will consider whether [its] approach needs further modification in the run-up to 2012”.

When contemplating further changes, TPR must be aware of the necessary time lag between introducing new requirements or standards, and the ability to update administration systems in the light of this.  In particular, paragraph 2.2 refers to the fact that some administrators are waiting for the results of TPR’s review, in particular to see whether an enforcement-based approach will be adopted.  Trustees may therefore be left with little option but to wait until administrators’ systems are updated before they can carry out a meaningful data review in line with the recommendations in TPR’s Guidance.

Aims of the Guidance

Paragraph 4.1 states that TPR’s aim is “to raise awareness of, measure and, where necessary, improve standards of record-keeping”.  We support this aim and consider that it would be helpful if this were highlighted up front at the start of the Guidance.

We had understood the “comply or explain” standard of conduct to be the requirement on trustees and others in relation to TPR’s codes of practice (under section 90(5) of the Pensions Act 2004 provides that codes are admissible as evidence in legal proceedings).  Guidance, by contrast, we understood to be designed “to help improve understanding of work-based pension schemes and to promote good practice” as well as “to help trustees, employers and others understand what the law requires”.

As with other recent consultations from TPR, (for example, the consultation on internal controls which closed on 1 March 2010), the emphasis in the consultation on enforcement suggests that the level of compliance required is akin to that under a code of practice.  Therefore, it may be appropriate to have less emphasis on enforcement if TPR does intend the consultation to result in guidance.

The consultation makes reference to the possibility that a failure to keep adequate basic records may be characterised as a failure to maintain adequate internal controls.  We note that the requirement to maintain internal controls in section 294A of the Pensions Act 2004, is enforcable by TPR in the event of “serious internal control failings”.  As we understand that the revised the Guidance is to focus on enforcement, it may be useful to note the type of action that can apply.

Structure of the Guidance

It is unclear how the final Guidance will be set out, given that the format is part consultation and part draft guidance.  It would be helpful for the final draft Guidance to be available to stakeholders before it is finalised.

Appendices E and F of the Guidance are illustrative lists showing examples of common and conditional data.  These lists are helpful, as they give a clear idea of what is expected of schemes by TPR.  They will be of particular assistance to smaller schemes which may have fewer resources to help them assess the state of their data than their larger counterparts.

However, we are concerned that the illustrative list of conditional data is both long and inadequately signposted for different types of schemes.  It may be more helpful to compile separate lists relevant to different types of arrangements (for example trust or contract-based, DB or DC, active or deferred members), as this it the approach most commonly adopted in practice.

In our view, the requirement for trustees to comply with the different standards for data should be phased-in (we refer to the framework for data tests on page 5 of the consultation).   For example, while 2012 may be a reasonable target for achieving these standards in respect of active members, a scheme may have legacy data which will take longer to assess and update.  If TPR is minded to use targets, schemes are more likely to be able to achieve them if these are broken down into smaller categories, and phased in over a longer period.

Paragraph 2.5 of the consultation suggests that those responsible for running and administering pension schemes should “have a concrete plan in place to put the records in order”.  We agree that using a plan is a sensible route to good record keeping.  However, in line with our comments on legacy data below, we consider that this approach cannot be applied to all legacy data cases.

Costs of compliance

Paragraph 3.2 of the consultation notes that “cost is still quoted as a barrier when considering whether to undertake the data tests”.  Our experience suggests that TPR has underestimated the extent to which cost is a barrier to compliance with the Guidance, particularly in the current economic climate.  The indicative costs included in paragraph 5.5 of the consultation are, in our experience, unrealistically low.  We believe that the time cost is likely to be much higher when account is taken of company / scheme internal time and resource, as well as advisers’ fees (for example where actuarial or legal input may be required) in addition to the pure administration costs.

In the current economic climate, many schemes are unlikely to have the funds available to cover a full data reconciliation exercise.  An alternative approach could be to encourage schemes to start by reviewing sample sets of data, in order to test the state of member records.  This may lead to more realistic targets for schemes, based on identified problem areas.  Such an approach could then translate into a more value based approach for schemes.
Legacy data

On page 17 of the Guidance, TPR recognises “that there may be reasons why not all data may be 100% accurate”.  In our experience, this is most likely to arise in the case of legacy data, which, in some circumstances, may be incapable of reconciliation.  In the case of historical records, some original records may have been destroyed or otherwise lost – for example on a transfer-in.

It would be helpful for TPR to give examples of circumstances where it will not use its enforcement powers, and if the Guidance were to include examples of TPR’s expectations as to “reasonable endeavours”.

Given that it may not in all circumstances be possible to achieve the same standard of records for legacy data as for the current membership (and it is unrealistic to maintain the same expectations in relation to both types of data), it may assist if the Guidance were divided into separate sections, dealing with the issues for current and legacy data separately.

Record-keeping and electronic disclosures

Between January and March 2010, the DWP consulted on draft disclosure regulations, focusing on electronic communications, particularly as a means of disseminating scheme information by email or via scheme websites.  A key issue in this regard will be data storage, including the information which members will be able to access in connection with their individual pension benefits, as well as general scheme information.  One such example is the treatment of documents which are uploaded onto a scheme website.  A booklet, for example, may be available to view on-line.  It might be updated by means of replacing a single paragraph, or it may be replaced in its entirety by a new version.  It would be very helpful if the Guidance on record-keeping could also give direction as to how such changes can be managed and recorded in the general context of scheme record-keeping.