The February 2013 edition of Pensions Pieces included a detailed article about the importance of good record keeping. This was followed, in the August 2014 edition of Pensions Pieces, by another article on the Pension Regulator's survey on the progress made by occupational pension schemes in putting their records in order by the timeframes it prescribed for doing so. As our 2014 article mentioned, though some good record keeping practices had been identified, the Regulator noted, with some disappointment, that there were still a number of schemes which did not appear to view good record keeping as a priority. Indeed, the most recent thematic review on record keeping published by the Pensions Regulator in March 2015 mentions that as at March 2014, the Regulator had opened seven scheme investigations to examine in more detail how record keeping issues were being addressed by particular schemes, and a further four investigations were opened after that where the schemes in question had failed to demonstrate to the Regulator that adequate measures had been taken to address its concerns. The Regulator's conclusions were that schemes less engaged with their advisers (which, it observed, tended to be small defined contribution arrangements) were less able to show they were meeting the Regulator's expected standards of record keeping.
The March 2015 review also gives examples of the sorts of actions the Regulator has taken in various scenarios which is a helpful insight into its enforcement policy on a practical level.
Indeed, the Regulator says that its approach is to 'educate and enable, and where necessary to enforce' (though it would seem that enforcement would probably only follow after persistent failures have not been remedied following intense engagement by the Regulator to resolve any issues).
The report also highlights why good record keeping is of paramount importance and lists the following reasons (amongst others):
- Requirements for DC schemes which came into force with effect from 6 April 2015 require them to secure that core transactions are processed promptly and accurately – this can only be achieved if records are accurate and up to date. Indeed, trustees are now obliged to describe, in an annual statement, how they have complied with these requirements which will prove difficult if records are not in order;
- The new pension flexibilities introduced from April this year mean that that it is more important than ever that members have accurate information in relation to their benefits so that they can make appropriate decisions (which are now more broad ranging) in relation to them. Indeed, we would flag that if these decisions are based on 'bad data', the trustees could well be in the firing line for any adverse consequences;
- With the Government's proposals to introduce a system of automatic transfers of small benefits in certain circumstances (see our previous articles on this although there has been some suggestion that this is no longer a policy priority) it is vital that records are accurate so that correct benefit details can be passed on to receiving schemes – especially because any errors may only be uncovered years later when members come to retire which would also make rectifying any mistakes much more difficult;
- For contracted-out schemes, with the introduction of the single state pension and the end of contracting out from April 2016, there will only be a limited amount of time for schemes to reconcile their contracted out date with HMRC (see our earlier article on this). If the data does not match this could lead to a significant number of queries to be resolved in a very limited amount of time;
- Decisions about many scheme exercises can be fundamentally affected by scheme data – if this is wrong then it could lead to inappropriate decisions about e.g. scheme funding, buy-ins and buy-outs and also be costly for employers if more money has to be put into the scheme when the data is corrected.
Although the timescales imposed by the Regulator for bringing data up to certain standards have no legal standing, the principle behind getting scheme records in order is an important one particularly for the reasons mentioned in our 2013 article and above. Not only that, but having to deal with the Regulator's involvement directly in a scheme may give rise to additional cost and resource which would be better spent putting records in order in the first place.