Data becomes key focus for scheme endgame prep

Aon says there is ‘direct link’ between data quality and pricing

Jonathan Stapleton
clock • 3 min read
Quarmby: 'The penny has dropped that clean data is crucial'
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Quarmby: 'The penny has dropped that clean data is crucial'

Data is now the key focus for UK pension schemes on their journey to risk settlement, an Aon poll shows.

The consultancy said results from a survey it conducted among attendees of its latest risk settlement webinar revealed that 43% said that, while insurer pricing and longevity risk were identified as the foremost remaining risks, data would be the key focus as they approached their scheme's endgame.

Aon associate partner Charlotte Quarmby said: "The penny has clearly dropped at pension schemes that clean data lies at the heart of so many activities and is especially crucial when pursuing risk settlement in the form of an insurance buyout. There is a direct link between data quality and pricing, with insurers more inclined to quote on the best-prepared schemes and reducing 'prudence' for data unknowns. All this leads to better pricing.

"Aside from the period at the start of the Covid-19 pandemic, pricing is currently the most attractive we have seen in the last five years. Schemes that are ready to approach the market and have good quality data, have an opportunity to get a deal at a good price if they can act quickly. Clean data can really aid that process, enabling insurers to prioritise transactions in a busy market."

Quarmby added there were other reasons for this realisation of data's importance.

She said: "It goes beyond just an understanding that 'controlling the controllables' will allow schemes to be on top of the issues that are directly within their ability to influence and therefore enabling them to make better decisions. There is also an expectation from The Pensions Regulator (TPR) that schemes should maintain their data and also improve its quality. This must be annually reported to TPR via the scheme return, in which schemes have to assess their common and conditional data scores."

Aon associate partner Hannah Brinton added that insuring residual risks and GMP equalisation were other factors.

She said: "As part of the risk settlement process itself, many schemes - particularly larger ones - also find that they need to seek ‘residual risks' cover. This requires a high degree of confidence in data to ensure that the price paid for the cover is kept as low as possible. Greater - data-led - uncertainty will lead to either a higher price or more exclusions from the cover. Insurers will not want to be on the hook for corrections to future pensions which are the result of poor original data.

"GMP equalisation is another key factor. It's increasingly at the forefront of schemes' agendas and to be done correctly requires clean data. It will inevitably be a huge focus for the next few years.

Brinton added: "But ultimately, this increased focus on data will benefit all scheme stakeholders. Clean up-to-date data has to be a positive for all involved with a pension scheme, whether they are running it or a member.  But when it comes to approaching a scheme's endgame via an insurance solution it really is essential - and a major potential cost saver."

The poll findings come after Aon published it's latest quarterly bulletin last week looking at opportunities for sub-£100m transactions in the risk reduction market.

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