DB schemes 'could save up to £30bn' through access to more timely data
Hymans Robertson has launched an analytics service to give trustees access to more accurate and timely funding and risk data, to address issues from relying on out-of-date information.
It will allow trustees to access ‘on demand' valuations that give a different approach to funding and risk management based on detailed, accurate, and timely data.
It comes on the back of an increased need for accuracy when schemes are becoming more mature, have higher levels of hedging, and their cash flows are more uncertain. Schemes are increasingly in drawdown, with the consultancy calculating they are paying out £20bn a year in aggregate, which will rise to £100bn per year over the next 30 years.
At the same time, more members are transferring out to take advantage of the defined contribution pension freedoms. If valuation data does not reflect these settlements as they occur, cash flow forecasts will not be accurate, and could have big implications for funding and investment.
Partner Calum Cooper said neither the traditional approach of having triennial valuations, nor analytics based on historical data, no longer meet the needs of today's trustees: "Relying on data that's three years out of date to project forward cash flows and ignoring what's happened since the last valuation, such as members transferring out, doesn't really meet the needs of trustees to manage risk around cash flows in particular."
"There's a legacy debt in the industry around data, some of the systems are quite arcane and as a result the cost of getting straight-through-processing is quite high.
"Data matters. If you're basing decisions on data that's three years out of date, it can really result in strategically poor actions."
The firm also said most trustees only receive their valuation data within three months, six months, or even after six months.
It estimates that having access to more timely data could result in as much as £30bn of savings across all DB schemes due to better informed de-risking.
"For a £500m scheme, over or under-estimating scheme funding can be as significant as £30m over the triennial cycle in adverse markets," said Cooper.
This figure combines the effect of schemes de-risking on out-of-date data as well as others failing to take advantage of opportunities to de-risk despite having appropriate triggers in place.
"Having more precise information would avoid both these scenarios," he added.
"If you're taking more risk than you need to because the data's out of date, and that risk goes against you, the cost could be £30bn in aggregate across all DB schemes."
The new service is being rolled out to actuarial clients in a phased way at no extra cost, with the first being those with March 2016 triennial valuations. All schemes that are both actuarial and administration clients will have full use of the service by March 2018. Where schemes are only actuarial clients, they can submit data to Hymans via a portal.
It comes after the firm's recent survey of 100 DB trustees showed nearly three quarters (72%) would welcome more accurate data on funding, risks and scheme cash flows. Some 94% did not have access to formal triennial valuation results within one month and 53% said it would take six months or more to access formal triennial data.
Despite this, 58% of trustees said they believed they already had access to ‘on-demand' member by member data from their actuaries and administrators. Cooper said this suggested there is a "misconception" in the market.
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