On the record

12.03.09

 

This article was written by Mike Woodall, public sector pensions strategist in Wragge & Co LLP's Pensions team and published in the 12 March issue of Professional Pensions.

If an army marches on its stomach then it is equally correct that the effective administration of a pension scheme relies heavily on the quality of its membership database.

We tend to think that out longest relationships are perhaps with our spouses or partners or with our employer or mortgage provider. However, it is likely that our longest relationship will be with our pension provider. It is possible that an individual joining an occupational pension scheme at age 16 on leaving school (provided they have the wisdom to make such provision) may well continue into their 80's or 90's as pensioners of that same scheme. This represents an ongoing relationship of over 70 years. The challenge is to maintain an accurate record of that relationship throughout the whole of that period. During such a long period there are risks of either losing contact with the scheme member or having out of date data on the system which could have significant consequences.

For example, if a benefit statement is issued containing incorrect pension projections on which an individual makes a decision to retire it is possible that the Pensions Ombudsman could in certain circumstances order the scheme to make payment at the promised rate rather than that which should actually have applied. There is also the potential reputational risk if the scheme appears to have treated a vulnerable person such as an aged widow harshly.

Recently the Pensions Regulator has issued guidance on record keeping by pension schemes and the Pensions Advisory Service has commented on the dangers that the lack of an accurate database can represent.

Not too many generations ago most individuals enrolled in an occupational pension scheme on joining an employer and may well have remained with that employer until retirement staying as full time employees with periodic changes in the rate of pay as a result of cost of living awards or promotions. Those days are now almost forgotten as people change employment frequently, marry more than once, move from full time to part time and then back again as a result of family circumstances and may even change gender!

Prior to the current credit crunch approximately 1 in 20 people moved home each year which without any action on the part of a pension scheme administrator would produce a 5% degradation in the accuracy of their address database each year.

It is therefore, necessary for pension schemes to carry out regular audits of their membership databases which should confirm that not only do all fields contain entries but as importantly checking the accuracy of their contents. There are a number of commercially available databases to which scheme records can be checked. These cover such diverse areas as correct postal address to mortality data. The public sector pensions arrangement has for many years had access to a government mortality database as part of the National Fraud Initiative which I believe has now become available to private sector pension funds. This will provide information on individuals to whom pensions may still be being paid but who are in reality deceased.

Databases can also be cleansed by issuing details to the scheme member of the data currently held with a request that their contents should be checked carefully and any inaccuracies notified to the scheme administrator. This can form a discrete exercise or take place as part of the issue of benefit statements. Additionally pensioner existence validation for those living abroad can be carried out on a postal basis where if a reply is not received within a pre determined time payment of the pension is suspended until continued existence has been confirmed. It is also possible to interrogate pensioner payrolls by country of residence in order to indicate if any country has a significantly higher average age of pensioner which may indicate the existence of fraudulent practices.

From my own experience in pension scheme administration I have never failed to be astounded at the inventiveness of individuals who wish to continue to receive a pension after the death of the intended recipient. I have always been a great advocate of seeing original documents such as birth or marriage certificates at the earliest opportunity in order to ensure the accuracy of member records. However, one major cause of inaccuracy is incorrect data inputting. It is therefore, advisable wherever possible that the interchange of data should be achieved electronically to avoid double data inputting wherever possible.

Because of the large numbers involved it is impossible to guarantee that pension scheme records are 100% correct however with appropriate diligence the number of errors and their potential impact can be minimised.

For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Amie Ryalls on +44 (0)121 213 2360 or Rebecca Davies on +44 (0)121 213 2396

This published article may contain information of general interest about current legal issues, but does not give legal advice.