2018: The Year of Deferred

Geraldine Bassett of PASA discusses the administrative challenges of deferred DB members and 2018 is the “time to bite the bullet”

There is a lot of comment in the press about issues that impact the provision of administration services for deferred members of DB schemes.

These range from scams, to the increase in the requests for cash equivalent transfer values (CETVs) and as a consequence, the challenges administrators experience with the transfer process itself.

Looked at separately, each have a potential impact on administration costs, services and our ability to meet member needs.

Looked at altogether it strengthens the argument that 2018 is the year that Trustees should engage with their administrators to develop a strategy for their deferred population.

I am not, for one minute, suggesting that deferred members are any more important than pensioners – of course that is not the case – but they are our future pensioners, our work to be done and often represent a significant proportion of the total scheme membership and liability.

Furthermore we know that the Pensions Regulator (TPR) is renewing the focus on data and, for DB schemes, the deferred population is often where a large proportion of the data issues lie.

This is more than a passing interest, with TPR already having forewarned trustees that they will be asked about quality of data and the extent to which they are looking to improve this on the Scheme Return.

Although we don’t yet have all the detail, there is no hiding from the fact that we will all be held to account. Compliance has to be a high priority.

Good data is at the heart of the Pensions Dashboard. And how beneficial will it be for all stakeholders if deferred pensioners engage with their legacy pension savings and administrators do not have to spend so much time (and money) tracking down members who have forgotten about their pension benefits?

Above we have looked at some of the compliance and engagement considerations, but there is a lot of industry ‘noise’ at the moment about the rise in requests for CETV figures.

This has impacted the majority of administrators and yet, whilst everyone has acknowledged the rise in numbers and we are seeing actions, in the meantime, we still need to manage this work in a way that ensures we do not fall foul of the disclosure regulations.

Conversations need to be broadened to look at how that increase is managed, how processes can be improved (although recognising that there is a role for the industry here) and whether proactive provision of CETV information, either at retirement, annually or online, would be a help or a hindrance.

Practically, administrators are often constrained in their ability to routinely provide CETV information because these are frequently calculated using a standalone modeller provided by the Scheme Actuary.

This makes provision of bulk information either on paper or online a challenge. A way to make this information easier to produce and more readily accessible to members may be a priority for some schemes.

The question of cost cannot be ignored, but nor can the fact that the increase in CETV requests experienced when the Freedom and Choice agenda was introduced has not abated – this is now business as usual for administration providers and it is important we adapt and recognise this.

De-risking initiatives and preparation for the ‘end game’ are still high on the agenda for many trustees and scheme sponsors.Only individual schemes will know where they have data issues that need to be rectified to support strategic objectives.

Perhaps worth bearing in mind is that these are likely to be the very same data issues that are currently impacting on member servicing and operational efficiency – probably risks that should already be managed.

In many respects I have only covered the tip of the iceberg. In reality we are talking about projects – some of which have the potential to be large and costly – and prioritisation of time and spend will be an important input to any discussions.

Administrators need to make it their new year’s resolution (if not before) to be ‘front foot’, not only asking trustees about their priorities and objectives in relation to their deferred membership, but to be clear about the challenges they face, the benefits that can be realised and how everyone can work together to better meet the needs of all stakeholders.

This, for me, reinforces the message that planning for 2018 is a time to focus on deferred members. This should include evaluation of the potential benefits based on objectives, the risk of not doing something and the output should drive priority.

This should then be assessed against cost to determine the business case.
The administrative challenges of looking after deferred DB members aren’t going away – even if we’d like them to. It’s time to bite the bullet and make 2018 the year to overcome this challenge for the benefit of all.

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