Can I run a buy-in exercise when my scheme administrators are working from home?

Covid-19 has certainly thrown up many challenges to our everyday lives – both inside and outside of work.

Whilst many of us are now working from home and adapting to the new norm, there have been a number of challenges particularly for pension scheme administrators – from changing processes to introducing new ways to communicate with members, all the time ensuring that pensions continue to be paid on time with no disruption.

In this environment, how do you run a complex process like a pension buy-in or buy-out transaction?

The focus of administration teams rightly continues to be on the critical tasks of processing payments, retirements and bereavement services. However, we’ve found that many administration teams also have the bandwidth to support other projects such as buy-ins and buy-outs based on our own experience working on several projects which are either transacting or in the process of approaching the market.

But preparation and approaching the market means lots of data work for our administrators doesn’t it?

Not necessarily.

Data does not need to be ‘perfect’ to approach the market for buy-in pricing. A good adviser will focus efforts on those items which will make a real difference to pricing, while identifying areas which can be deferred to a subsequent data cleansing phase when the pressure is off. In general, we find that only modest amounts of upfront data work are needed for most schemes before approaching the market. The Pensions Regulator’s recent focus on data quality has motivated many schemes in a BAU environment to do a lot of the preparation work we’d have previously suggested before approaching the insurance market.

We also make sure our clients’ buy-in contracts include robust and transparent terms to allow trustees to make changes to the data after an initial transaction is signed (eg to update GMP amounts to reflect your final rectification/equalisation exercise results). These adjustments are on the same day-one pricing so the terms are known at outset.

So, what is the biggest challenge at the moment in relation to data preparation?

We typically advise clients at the start of a process to collect members’ up-to-date marital status, often through a communication exercise. This is to ensure the scheme has accurate and up-to-date information meaning insurers can price the buy-in with more certainty and remove additional prudence in their pricing bases that they might otherwise build in if this information isn’t available.

Posting communications and asking members to return forms by post at the current time is of course very challenging and we are conscious of the potential sensitivity in collecting this information at the moment too.

But solutions are available. For example, at LCP we have created an online portal for members to securely upload information and forms. We have also been focusing on collecting and holding members’ email addresses to ensure we can communicate efficiently and promptly without the need to issue letters in the post. This has hugely benefited schemes in being able to continue to keep in contact with members and offer a safe and convenient way for them to return information to us.

There are other options too, for example using electronic tracing agents to run ‘marital status predictor’ exercises – essentially using publicly available information to ascertain whether members are married or not. This is a standard service which does not involve contacting members, is relatively cost effective and quick to undertake, and importantly has buy-in pricing benefits.

And what about the additional work throughout the process and on-boarding a buy-in?

We expect only a modest amount of input from administration teams throughout a typical buy-in process – mostly focused on inputting into any membership data queries and then ensuring any operational contract requirements tie in with the scheme’s existing processes. There are also options we can build into contracts to delay some of the on-boarding and additional reporting (if required) without impacting the timing of the original transaction or the cover purchased. This can be a really helpful release valve to manage workloads for administrators at the current time.

A clear plan at the outset and focused project management throughout the process will also help all parties manage both the initial workloads and those further down the line if a buy-in successfully completes. It’s important that this plan builds in some contingency and flexibility and that all parties are prepared to adapt should the situation change. One thing we are all certain of is that things will change and we will have to continue to adapt - this now feels like the new ‘normal’ way of working for all of us for some time into the future.

So, whilst a strong focus needs to remain on the core activities of paying pensions, administrators working from home doesn’t necessarily mean a pause on projects such as buy-in and buy-out transactions. Well-run, efficient teams, a flexible attitude and utilising a broader range of solutions than normal means these projects can run effectively while managing the team’s workload appropriately.