Seed-slinging quadcopters are restoring rainforests, Amazon is delivering groceries via unmanned drones and scientists are exploring ‘extended intelligence’ through integrated human-machines. These are ways in which technology continues to push the boundaries of human achievement and makes our lives easier, if not simpler. Yet in pensions-land we rejoice when we receive a Transfer-out quote in five days. Can it be true that a £2trn industry cannot harness technology to deliver something better?
The facts on the ground identify critical issues that stifle the progress of the pension industry, rather than allowing it to drive forward at hyper speed. At the core there are two: Data and Complexity.
Trustees and their Administrators are sitting on years of poor quality data residing in non-machine readable formats. Administrators are frequently told that it is too expensive to convert or clean and just as effective to clean on the fly at retirement. A good example is tracing deferred members’ addresses. This is clearly a pointless exercise at one end of the scale, when the member could quite easily move residence yet again before retirement.
However, enlightened Trustees and Administrators do not agree. Having an accurate address is critical when contacting a member about scheme developments, retirement options or an Enhanced Transfer Out exercise. Further, it is vital if the Trustee undertakes a post code mortality exercise or if further information is needed, such as spouses’ details, to sharpen bulk annuity quotations. A current address might well be a key way for a member to track down a pension via the Pensions Dashboard. Alongside their physical address, an email address and mobile phone number add multi-identifiers and could be more resilient against change.
In fact, must we even make a purely financial business case for a Trustee to invest in data cleansing? Responsible Trustees see good quality data as a GDPR-driven requirement for a Data Controller to ensure that they have accurate records. It is also a customer-centric requirement to ensure that an Administrator does not have to go through a one-off, member-by-member data cleanse every time a member contacts them for a transfer or retirement quote.
Further, Trustees and quality Administrators are keen that members should have online access to their pension schemes with automated quotations and potentially online retirements, and it is self-evident that this requires perfectly clean data. It would be absurd for our bank, for example, to say that they are pleased that their customer data is 75% or even 95% accurate. When we log into our bank accounts, we expect our bank balance, credit card details and mortgage details to be accurate to the penny, aside from any pending transactions. Our pension schemes should be exactly the same.
The second key area preventing progress is complexity. This is another battleground where some Trustees are leaping ahead by streamlining their benefit structures. We recently inherited a scheme where members had 55 tranches of benefit splits. We are undergoing an exercise to rationalise this to six. We took over another client with six payrolls, which we are aligning down to two. Trust Deeds and Rules are notoriously difficult to track down and, when found, may not even cover all of the benefit sections. GMP conversion is expected to accelerate benefit streamlining, and some Trustees are even going down the road of converting DC with DB underpins to full DB to simplify administration of their schemes.
All Trustees should work with their Administrators to address these issues. Cleaning data and simplifying their arrangements will reduce administration costs and risk, allow technology leverage and vastly improve the quality of their members’ experience.
Some Trustees and Administrators have started this journey already. There is a tried and tested solution already available in the market. It is time for the rest of the industry to follow.