As the funds of the various pension schemes continue to grow, there is the need for trustees, especially Boards of Employer Sponsored Schemes, to take the necessary steps to make their schemes ready at all fronts to deliver their mandate and also to handle unexpected disruptive situations.
This feature looks at three very important attributes pension trustees should pay attention in 2019.
Data administration is the backbone of pensions management. The operational activity is usually fraught with problems for companies in the fraternity. This is known to directly impact services rendered to consumers of pension services. Data management and scheme administration costs usually come second to human cost in a typical pension administration set up. The quest to achieve 100% accurate data drives operational cost.
The other burden is the period within which data has to be kept. In some jurisdictions pensions data is required to be kept forever. It may sound unreasonable but considering the fact that pensions is a long-term financial plan and it could take decades before proceeds are required, the perpetual storing of data is a necessity.
It could be noted that system glitches can cause distortions in data. It is therefore required of trustees to ensure that their data is accurate. This is could be achieved when schemes run data integrity tests. Scores should be 100% as anything below that score can cause a disruption in servicing at least one consumer. This is a combined effort of the trustees of the sponsoring companies and their pension administrators. As the mandatory 2nd tier begins to pay out in 2020, data integrity check is a necessary exercise to be undertaken by schemes’ trustees to ensure that their data is up to scratch. That way the trustee board would not be found wanting in fulfilling their mandates to the contributor.
Loss of data or disruptions to data is another prominent operational risk to pension schemes. One cannot entirely prevent events that cause such disruptions to business processes and/or data loss. However, there should be a proven system that recovers the data should such an event occur. Trustees should ensure that such a system is in place and they are active. One way trustees could satisfy themselves is to request for regular reports on system tests. Reports should be at least once a year. Without such tests there is the potential danger that the system would fail when needed most. The second thing trustees should do in 2019 is to request for some form of data recovery test report from their service providers to ascertain safety of data should there be disruption to their business which could affect data in anyway.
Risk Management Framework
Pension schemes are faced with a quite a good number of risks. Few of them that could be named include investment risk, data risk, operational risk, market risk and lot more indirect risks. The pension trustee is expected to be the risk manager of the pension scheme. It is worth noting that risks affecting pension schemes are to be actively managed. This begins with schemes building simple risk management frameworks which identifies their risk and their mitigation strategies. Usually the trust board will set a risk sub-committee who will handle this task. Alternatively, they could involve an external consultant to do that. The framework is to be reviewed regularly and be updated to captured current and emerging risk. If trustees have not done before, it is worth doing that this year. This would make the entire board be fully aware of the risk the scheme faces and be able to proactively manage them.