Data Detox: Safeguarding pensions from hidden multibillion pound losses
Poor data quality is costly and potentially damaging
Member data is the foundation on which pension administration is built. Poor data quality has a direct impact on operational efficiencies and outcomes, which cost schemes dearly, resulting in poor member experience and exposing both providers and members to unnecessary risk.
The Pensions Regulator actively emphasises the need to carry out more frequent checks on data quality, saying: “poor record-keeping can have a huge impact on members and can be very expensive for your scheme if things go wrong due to bad or missing data”.
There are a number of ways in which poor quality or missing data can end up costing a scheme:
Wrongly addressed mail can cost pension schemes thousands
Late notification of deceased can result in substantial overpayments.
Inaccurate or incomplete date details can have a negative impact on payments.
Missing or outdated beneficiary details delays pay-outs and impacts actuarial valuations.
Let’s look at each of these in more detail:
Wrong UK state pension address costs pension schemes thousands
Pension schemes have an obligation to provide an annual statement to update members on pension value.
Recently there has been a big shift towards e-mail, but many pension schemes don’t have great coverage of email addresses for their members and in any case, not all members are digitally engaged. Even with workplace pensions, where work email addresses should be available, there is the risk of email addresses being out of date where a person has since moved on from that employment, without providing a new contact email address.
So, physical mailouts are still a necessity.
Incorrect or incomplete address details may result in mail being wrongly addressed. Over half of schemes face issues with returned mail[1]. Only 1 in 4 homeowners will return mail received for the previous occupant as “not known at this address”. The remainder will throw wrongly addressed letters away, or else open them and access sensitive data.
Based on population address change data, 1 in 5 members’ home address will change each year and only half will think to inform their pension provider. So, for an average sized pension scheme with 50,000 members, a single mailshot could already result in wasted cost of £3,750[2]. For larger schemes of 5 million pension holders, this jumps to £375k.
LexisNexis® Risk Solutions recently carried out a review of over 11 million customer data records from 84 pension schemes. Our analysis showed 9% did not have up to date address details and a further 1.6% had incomplete addresses, missing either the first line of the address or postcode. That equates to over a million records where members might prove difficult to trace. If the tracing was carried out by post, this would equate to £825,000 in postage costs – on average £10,000 per pension scheme.
There is also the operational and reputational cost of having incorrect or incomplete address (or email) details for a member, as these are frequently used as part of an identity check. So, if a member contacts the scheme directly via a call centre, in many cases they’ll be asked to confirm the first line of their address or possibly their email address as part of the verification process. Having incorrect or incomplete records means the call centre will have to find other ways to confirm the member’s identity, adding more friction to the experience.
In addition, once the pensions dashboard comes into effect, correct address details will be required as part of the matching criteria for member identity verification.
Reducing Pensions Overpayments:
BT Pension Scheme Case Study
Late notification of deceased can result in substantial overpayments
Pension schemes are often heavily reliant on the next of kin to inform them of the bereavement of a scheme member. Where they are not informed, pension payments will continue being made to the member until the scheme provider becomes aware of the death. There is an increased fraud risk here also.
Not everyone remembers to notify the pension provider when a member passes, particularly in cases where the member had in any case lost contact with the pension scheme and/or the family was unaware of its existence. For larger pension schemes in the UK, the average notification period for a bereavement can be around 320 days. Where a pension is paying out, this can lead to very significant overpayments, as well as the risk of mortality fraud, where the family continues to receive annuity payments despite the annuitant having deceased.
The cost of these overpayments can quickly run into tens of thousands of pounds, which is why many pension schemes and administrators are prioritising this as an area for action, with significant cost savings to be made.
There are also the operational costs of going through each step of the bereavement process, so the quicker pension providers can find out about the death, the quicker it is for them to remediate and get in touch with the beneficiaries, to reunify the asset with them. Where a death notification is not received for months, years or even decades, it becomes a lot harder to trace beneficiaries and the process becomes increasingly expensive, often requiring the help of professional forensic tracers.
Most pension schemes today work with a provider to carry out mortality screening, but the success of this depends on the frequency of screening. Many carry out an annual screen, but with deaths occurring throughout the remaining 11 months, they could already be making quite significant overpayments for some time before it is detected that a member has passed away.
Inaccurate or incomplete date details can have a negative impact on payments
Particularly with older pensions, which were originally set up on paperwork or organised through a third-party adviser, there can be gaps or errors with the dates of birth recorded, either where the information collected was written down incorrectly, not captured in full or else was transposed incorrectly onto systems.
Transposition errors also exist in pensions onboarded more recently, for instance where people have mis-keyed just a couple of digits. There can also be issues with systems auto populating a date of birth, for example with generic date and months, such as 01/01/68.
Throughout the lifecycle of the pension, these problems will make it increasingly difficult to accurately conduct identity verification checks on the member, as date of birth is often a critical piece of information used to confirm an individual is who they claim to be. Date of birth data also critically impacts longevity modelling, so if the data is incorrect, this will impact the accuracy of benefit calculations and resulting valuations.
Data Cleansing
Missing or outdated beneficiary details delays pay-outs and impacts actuarial valuations
The current volatile economic climate has driven many schemes to consider de-risking their portfolios. We’re seeing a number of pension providers and insurers involved in buy-in or buy-out processes.
This has sparked a renewed interest in mortality screening but also in reviewing the information schemes hold on beneficiaries. For example, if the address and status of the beneficiary is not current, this may make it considerably harder, or even impossible, for the beneficiary to be located.
Many pension providers have missing or outdated information as to who the beneficiaries are, their contact details, whether they are still living as stated and other key details that are used in pension valuation modelling, such as whether they are a registered spouse or partner and if so, what the age gap is between the member and the beneficiary (as an indication of the risk to the insurer). Most insurers considering schemes for final buy-out require confirmation of the age of the spouse. For many schemes looking to de-risk, this will require a validated write out to members, which is expensive (especially if address details are inaccurate or incomplete), time consuming, and painful for the member having to take action on the back of the request.
