Pensions Regulator executive director June Mulroy tells Jack Jones why the industry must now make sure administration meets at least basic standards
The pensions industry is facing an opportunity to get its house in order that it can't afford to miss, according to the Pensions Regulator executive director June Mulroy.
Mulroy - who has responsibility for defined contribution, governance and administration - said that, with auto-enrolment just a few years away, now was the time for schemes to ensure that their administration met basic standards.
"And we're talking very basic," she said. "We want people to walk before they start running."
To this end the regulator has identified 12 items of core common data - including name, age, current address and date of joining the scheme - on which to concentrate. It has set a target of 100% accuracy for new data and 95% accuracy for legacy data in these 12 fields by 2012.
"These are the kind of things you'd expect an administrator of anything involving money to keep anyway," said Mulroy.
She added that targets for conditional data had not been set, as the watchdog wanted to concentrate on getting its main message home.
Mulroy noted the recent case in which Scottish Equitable was fined £2.8m by the Financial Services Authority and ordered to pay £60m to customers for administrative failings (PP Online, 16 December, 2010), as proof that people were taking this seriously.
Among the members affected there were 200,000 without a current address registered which, Mulroy said, showed the need for the regulator's focus on the basics.
She repeated her criticism that some schemes administration processes were "Dickensian", still relying on clerks and cards.
"That isn't necessarily a bad thing, but it means that they aren't hitching up to forms of modern technology that, with the younger workers that auto-enrolment will draw in, will be essential on the member-side."
This is the second year in which the watchdog has concentrated on administration and Mulroy expects to see an improvement from last year when 20% of trustees admitted that they never met their administrators.
"We've sent messages to trustees telling them that, if they contract out the administration, they delegate the responsibility for doing it, but not the accountability for it being done and done accurately," she said.
Mulroy said that the watchdog was working with the Institute of Chartered Accountants to get its standards written into their auditing framework for pension schemes.
"It's work in progress," she said. "But we felt we had to make it very clear to trustees that they had to do a bit more work to make sure they've got full assurance that their accountability is being addressed."
The targets for trustees are guidance rather than statutory targets, but the regulator does have the powers to strip third party administrators of their contracts.
Mulroy said, however, the regulator follows a three phase approach which puts the emphasis on education and enabling before enforcement measures are pursued.
She said: "We try to make a virtue of the fact that we start by saying to people ‘look, this isn't good enough - that's where you should be, and this is how you get there'."
Turning to the regulator's announcement on the amount of time schemes were spending in wind-up (PP Online, 24 February) Mulroy returned to the Dickensian theme.
"When we started the average was six years, but that's an average with a very long tale - the worst example took nineteen years winding up - that's like Bleak House's Jarndyce and Jardyce and it's appalling."
She restated the regulator's belief that it was possible to complete the process in two years and added that she was very impressed with the work of the National Insurance Scheme for the Pensions Industry (NISPI) on achieving this.
"They've split the reconciliation into a number of phases, and one of those, determining how many members are in the scheme, is semi-automated through shared workspace and can be done incredibly quickly," she said.
She added NISPI was investigating whether this could be used to allow live schemes to reconcile their data, but said that it was important schemes didn't use this as a substitute for work that should be done by their administrator.
Mulroy was also blunt about the level of data which was being targeted here.
"It's so unimaginably basic that it's almost an embarrassment to talk about it, but we're coming out and being quite direct about this."
But Mulroy said that the regulator needed to understand that schemes changed over time with mergers and acquisitions so it was not surprising that there were some differences, but she added that the big differences could be picked up very quickly.
Reacting to calls for the watchdog extend the scope of its programme said that there were no plans to hugely expand the range of data it considered.
She said that it was "on the radar" to concentrate more on good outcomes but that TPR was restricted by its nature.
"We're a very small regulator, and a risk based regulator, so what we're trying to do is embed standards and we're trying to embed them in the audit and assurance framework that the institutes run for TPAs."
Mulroy said that the regulator would revisit this issue regularly.
"We're certainly going to be looking at this for the next few years because we have to get people to that beachhead - a standard that is acceptable and tolerable," she said.
"In no other place where you are handling people's financial information would you be able to drop those standards as low as some of the examples we've seen.
On defined contribution schemes more broadly, Mulroy said that the regulator had started a consultation on enabling good outcomes for members in DC schemes. The consultation runs until the end of April and the regulator will be issuing a statement in the summer on the outcome.
Mulroy said: "It's radically different from defined benefit and I think we need to highlight those differences, especially to those who are already trustees of a DB scheme taking on a DC scheme as well.
Mulroy, who has only recently assumed responsibility for DC schemes at TPR, said that, after six years getting the DB space in order, it was time to turn to DC.
"It's highly unlikely that anybody will be auto-enrolled into any new DB scheme," she said. "The new world will be DC so this is the time to look at getting some solid foundations in."
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