Data is now the key focus for UK pension schemes on their journey to risk settlement, according to a recent poll conducted by consultancy Aon during one of its risk settlement webinars.

Attendees on the webinar were asked what they regarded as the biggest risk for their scheme, and what area will be the focus on their journey to settlement.

While insurer pricing and longevity risk were identified as the foremost remaining risks – with investment risk to a lesser extent than seen previously – there was a clear preference from 43% of respondents who said that data would be the key focus as they approach their scheme’s endgame.

Charlotte Quarmby, associate partner at Aon, 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.”

She added: “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.”

She noted, however, that there were other reasons for this realisation of data’s importance.

“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,” Quarmby said.

She added that there was 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,” she said.

Hannah Brinton, associate partner at Aon, 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.

Brinton added: “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.”

She said that 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.”

But ultimately, Brinton said, 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.”

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