Heywood Pension Tech
Pension risk transfers (PRTs) hinge on reliable data. Did you know that as many as two out of every three pension risk transfer quote requests are declined due to incomplete or inaccurate data? This crucial hurdle can often derail efforts to secure members' futures.
Data underpins everything. From ensuring the right amount of benefits are paid to understanding the link between pension liabilities and mergers and acquisitions (M&A) corporate enterprise value: accuracy, insightfulness as well as speed of data extraction are what drive value for stakeholders.
For a successful transaction and risk transfer to take place, there must be a certain level of confidence in a scheme’s data, and for key stakeholders – trustees, advisors, insurers and asset managers – you guessed it, data accuracy plays a central role.
Data for trustees
Trustees looking to secure or increase security of members’ benefits in a PRT will view scheme data in a holistic manner.
Accurate data is crucial for ensuring accurate benefit payments, but Trustees also need to think about the bigger picture and the long-term management of data. It’s important to ensure an audit trail of historical updates, corrections and use of scheme membership data.
This includes vital information, such as member at/pre-retirement decisions, address, postcode and occupation. These data points provide richer information on the scheme’s experience data.
To successfully approach and navigate the PRT market requires scheme data of a minimum quality but that can be speedily manipulated to take advantage of market opportunities when they arrive.
For advisors
Advisors help schemes identify key data that is needed for PRT. A scheme’s benefit specification is essential to enable accurate benefits to be calculated and insured.
Technology, such as rules-based calculation engines, can help automate standard features of the specification and enable actuarial and legal inputs to focus on detailed, idiosyncratic elements of what needs to be insured.
During periods of high demand and limited resources, the use of technology to automate and deliver a precise overview of a scheme’s liabilities can contribute to easing potential bottlenecks.
For brokers
Brokers of PRT deals project manage the process, liaise with different stakeholders and facilitate solutions for issues that may arise during a transaction. They receive and distribute PRT data. The more complete and accurate scheme data is at the outset of the PRT process, the more likely it is that it’ll lead to brokerage success. PRT brokers will want to receive scheme data that is of minimum completeness.
Data needn't be perfect, but it must allow risk carriers (insurers, reinsurers, commercial consolidators or banks) to credibly price deals. Consultancies that provide PRT broking are increasingly using data technology specialists to help schemes reach that data quality threshold.
For risk carriers
Risk carriers will price risk based on the underlying benefit data they receive from the pension scheme. Pricing PRT deals requires significant resource management; incomplete data often leads to declined quotes.
It’s common to hear risk carriers saying they decline to quote on two out of every three schemes they receive requests from, and the top two reasons are limited capacity and incomplete scheme data!
What can be a prelude to scheme engagement with PRT is corporate M&A involving the scheme sponsor. The M&A will inevitably factor in the financial risks (current and future) associated with the scheme and its potential adverse impact on enterprise value. The M&A will require due diligence on the scheme and involve an audited data cleansing history and review of benefit specifications.
DB pension schemes are on an end-game journey plan to ensure they pay promised benefits to members until the very last entitled member dies. That journey will likely involve engagement with the PRT market. Like all markets, PRT relies on accurate and timely data to function efficiently.
A scheme’s data does not have to be perfect, but it does need to be of a minimum level of completeness, which, in turn, will be linked to its liability size.
Schemes entering the PRT market need a data enrichment strategy for success. During periods of high market activity, a scheme’s data quality and preparedness are crucial in driving the success of a PRT engagement.
