It is time for the industry to face up to its data problems

For as long as I have been reporting on this area, which is nearly seven years, there has been a reluctance within the industry to fully face up to the scale of problems with data quality, both in legacy defined benefit schemes, and newer defined contribution pension plans.

The truth is that due to incomplete, inaccurate or missing data, millions of scheme members cannot be absolutely certain that the benefits they will receive, from private and public schemes, will be those they have actually earned.

But this shocking fact is rarely acknowledged in public. The consequences of unreliable pension records are often referred to by policymakers, regulators and the industry as leading to “poor outcomes” for members. But a pension that is not correct is more than a poor outcome. It is a scandal.

Given the serious consequences for members of inaccurate data, it is not right that these schemes have been given another six months to get their houses in order

Some individuals who have tried to push the industry to face up to this elephant in the room, such as former pensions minister Baroness Ros Altmann, say they have met with denial and obfuscation.

In 2017, Baroness Altmann told the Work and Pensions Committee that millions of older retirement savers could not be sure that their pension payments were accurate due to unreliable record-keeping.

400 schemes still not taking heed

This frank admission, to a parliamentary select committee, should have been another trigger for schemes to get their houses in order.

But more than two years on, hundreds of schemes are still failing to take their responsibilities seriously.  

Trustees should carry out regular reviews of their ‘common’ data, such as members’ names and dates of birth; and ‘conditional’ data, or the data used to calculate benefits, such as salary and length of service. But not all schemes are doing this.  

This month the Pensions Regulator had to order the trustees of 400 pension schemes – ranging from large to small – to urgently review their data. 

These schemes were selected from a wider pool of 1,200 schemes believed to have failed to have reviewed their data in the past three years. 

The schemes – across the private DB, DC and public sectors – may hold accurate data, but they have failed to confirm to the regulator that they have reviewed their data. Carrying out a data review is a vital part of good governance, and failing to do this puts trustees at risk of failing to identify administration issues. 

While it is good the watchdog is getting tough, this crackdown is long overdue.

Less carrot, more stick

Three years ago, the regulator made clear that it expects all schemes to measure the presence and accuracy of their data, and put plans in place to resolve issues where they find them.  

This came after a survey of more than 530 trust-based schemes revealed little improvement in record-keeping.

More worryingly, the same survey found that accurate data was not seen as a priority by trustees, who did not engage with their administrators accordingly.  

Given the serious consequences for members of inaccurate data, it is not right that these schemes have been given another six months to get their houses in order. They should be pushed to act more urgently, and face tougher consequences than fines of £5,000 for individuals, or up to £50,000 in other cases, if they continue to breach their duties. 

Some may argue I am being too harsh. After all, many trustees and scheme managers have inherited systems created before the pre-digital era.

They have paper-based records that were never computerised and may have been lost, damaged or destroyed over the decades.  

A complex tax system, and automatic enrolment rules, means that some employers are confused over how to deduct pensions tax relief or contributions. 

These are real issues, but they are no excuse for inaction by some scheme managers who are burying their heads in the sand. If poor data quality is found, they are expected to draw up improvement plans, so members do not miss out on the benefits they are owed.

This particular elephant in the room is getting harder to ignore. Soon schemes will be required to feed member data to new pensions dashboards.

It is vital that member data is reliable as savers will use the dashboards to make decisions about their retirement plans. The regulator must now be tougher on scheme managers and trustees who do not take their record-keeping duties seriously.

If this particular elephant continues to be ignored it threatens to erupt into a major scandal that will come back to bite the industry in the form of costly complaints and fines.

Josephine Cumbo is pensions correspondent for the Financial Times