Governance Spotlight: keep playing the “record”

Introduction

The need to improve standards of information held in member records can start to slip off the radar. After all, TPR first issued its guidance just over a year ago and its timetable to see measurable improvements by the end of 2012 still seems a way off yet. In the third of our ongoing series of newsletters focusing on trustee governance, we aim to help trustees maintain momentum on this critical issue and identify practical tips to target resources effectively.

In this Alert:

• Quick recap – why good records are important
• Who is responsible for record keeping?
• Changing landscape? 
• What is it all about? 
• What to do now
• Mind the gaps…
• How we can help

Quick recap – why good records are important

Accurate record-keeping is an essential element of the good governance of pension schemes. Without good records:

• there can be no certainty that the right benefits will be paid;
• significant additional costs can arise, especially on events such as buy-outs, mergers and wind-ups;
• reputational damage can be caused; and
• serious risks increase, such as the possibility of funds being misappropriated.

Who is responsible for record keeping?

• Ensuring record-keeping is up to an appropriate standard is a core aspect of trustees’ responsibilities.
• But the scheme’s administrators should help – the key is to ensure that administrators know, and action, what is expected of them. That can require striking the right balance between working to achieve measurable targets against the inevitability of cost and resource constraints.

Changing landscape?

• TPR’s June 2010 guidance brought the issue of record-keeping towards the top of many trustee boards’ agendas, with additional steps taken in the year since to raise awareness further. TPR reported recently that 75% of schemes are aware of its targets.
• But clearly awareness alone is not enough. There are some alarming figures revealed in TPR’s recent survey1:

• two-thirds of members are in schemes that have not measure their common data;
• of those schemes aware of TPR’s guidance, only around half have an agreed action plan to improve their data; and
• almost one in four schemes do not carry out annual data accuracy checks.

• it is clear therefore that many schemes need to step up a gear, to move from understanding responsibilities to taking action to improve standards.

What is it all about?

TPR’s guidance identifies three different types of member data held by pension schemes making recommendations for each. These are:

• Common data – used to identify members, such as their name, address, NI number and date of birth. TPR requires tests to be carried out on common data with the aim of ensuring that 100% of data fields are populated for post-June 2010 data and 95% in respect of prior legacy data.
• Conditional data – this varies from scheme to scheme but examples include salary details and dates of leaving pensionable service. TPR suggests that trustees identify what conditional data is needed for running their scheme and set their own targets accordingly.
• Numerical data – such as the number of members who are actives, deferreds or pensioners.

What to do now

• TPR expects trustees to have completed remedial action by the end of 2012.
• But it recognises that its targets are what schemes should “strive for”, not absolute requirements.
• Trustees should ask themselves: “can we demonstrate that we are doing all that we reasonably can to hit TPR’s targets?”
• One way to do that is to have a robust plan in place, with clear processes that can reasonably be expected to deliver.

Mind the gaps…

• You cannot fix a problem without knowing what it is, so the starting point for trustees is to identify the gaps, working with their administrators where relevant.2
• Where tests indicate that there are deficiencies in the data, set an achievable action plan (including timetables) to address the problems.
• In our experience, it helps to think laterally. Missing data does not necessarily mean that there is a problem. The key is to understand whether data is really required in order to meet objectives and consider whether trying to collect data is achievable and at what cost.
• Simply gathering data is not the “Holy Grail” – it is about retaining and maintaining accurate data.

How we can help

• Our extensive client base and client training programme gives us real insight into what schemes are doing and where the pinch points can be.
• Seeing the bigger picture is important and we can help you strike the right balance between the challenges of resource constraints versus compliance requirements.
• We have helped schemes develop robust conditional data lists and provided practical guidance on developing improvement plans.
• Where trustees look to their administrators to do the running, we can assist in ensuring that the terms of engagement and scope of responsibilities are sufficiently watertight.

1 TPR’s 2011 (fifth) governance survey, May 2011
2 See some useful tips in TPR’s prompt sheet for trustees: “Keeping member records up-to-date” dated February 2011