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    2015 Year in Review

    By Tom Nimmo on Friday, December 18, 2015

    This year has been host to some surprising events, such as the discovery of liquid water on Mars and Donald Trump leading the Republican presidential nominee polls. After the surprise announcement of Freedom and Choice in Pensions in the April 2014 budget, it was always going to be difficult for pension events in 2015 to match that level of drama, but there have still been a few twists and turns in the past twelve months. This, my second pension industry review in as many years, is fast becoming an annual tradition.  In it, I will look at how events have played out against expectations, as well as making some wild predictions for 2016.

    Following on from the announcement of Freedom and Choice in Pensions in 2014, April 2015 saw the new legislation coming into force, allowing pensioners to access their funds in a range of new ways. The changes sent the pensions industry into uncharted territory, some predicted administrative challenges in dealing with member requests and even the prospect of pensioners cashing in their entire pension pots to buy Lamborghinis. So far, there have been no confirmed cases of pensioners buying supercars, but around £2.7b was accessed under the new rules in the six months from April. The introduction of pensions freedom has not been entirely smooth, with pension savers encountering issues in accessing their funds, such as delays in transfer times and some providers not offering the full range of options.

    From a data and operations perspective, it will take time for the market to fully adapt to the changes that the new legislation has enacted. This can be seen in the response from providers, who say that they have not received adequate support in order to develop systems that can deliver the proper information and protection that consumers should expect in making choices about their retirement options. The eventual form that the market will take is probably another year or two off, but it is worth considering my colleague, Dennis Mincher’s viewpoint on the possible consequences of rapid industry change on data quality and processes.

    Echoing the sentiments of providers to protect consumers, and undoubtedly linked to Freedom and Choice in Pensions, there has been a huge reported rise in the number of pension scams in 2015. Despite concerted efforts to tackle pension liberation and pension fraud in the past year or so, figures for both types of crime increased from April onwards. Member awareness is hugely important in the fight against pension scams, but so too is the need to protect members’ data from scammers, as this expert opinion from my colleague, Monica Cope warns. Access to members’ personal pension details could be just the leverage that confidence tricksters need to convince potential victims that their scams are legitimate opportunities.

    Data security across all industries continues to be a major issue, with a number of major security incidents occurring in 2015. Back in February I wrote about the Anthem Hack, which led to 80 million records being stolen. At the time the hack was announced, there was scarce detail as to the nature of the exploit, the responsible party, or the reason for the attack. Since that time, security analysts investigating the attack have revealed that the hack was conducted by a sophisticated and well-funded hacker group known as Black Vine. Using zero-day exploits that are unknown and unpatched by software vendors, the hackers compromised the devices of Internet Explorer users with infected webpages, with the initial breach of Anthem’s systems occurring almost 10 months before the hack was detected. Incredibly, the motivation for the Anthem attack was to gain personal information on individuals employed in the energy and aerospace industries, with the view to using the stolen information to assist in further attacks against companies in those sectors. It is clear from this case that the vulnerabilities caused by zero-day exploits and the length of time that the hack went undetected, reinforce the need for organisations and pension schemes alike to have robust data security practices and incident plans in place.  

    In addition to traditional network security, the ‘Internet of Things’ became an increasingly used term in 2015, as everyday objects become evermore connected to the digital world. Whether it is smart TVs or mobile phones, the kinds of interaction that these devices enable also carry an associated security risk, and there have been a number of incidents over the last 12 months, including the revelation that the wi-fi enabled toy icon, Hello Barbie, could be hacked in order to spy on the children playing with it. Whilst Hello Barbie is unlikely to find its way into the boardrooms of many pension providers, the security threat posed by network enabled devices, such as smart phones and tablets, is something that needs to be considered, as explained in Monica Cope’s list of five surprising security threats from August this year.

    From surprising risks, to a well advertised risk now with the continuing countdown to the end of contracting-out. The issues facing pension schemes and the actions that trustees need to take in relation to their schemes’ contracted-out records are issues that we have spoken about frequently throughout 2015. My colleague, Laura Moore, provided her thoughts on the issue after attending HMRC’s conference on the GMP Reconciliation Service in May. Based upon the application levels to HMRC’s service back in May, Laura expressed her predictions of impending doom in relation to the GMP reconciliation process for both pension schemes and HMRC alike. Sadly, it seems that Laura’s prediction is still on course to be true, as application statistics in September still showed that over a third of schemes had not signed up to the GMP Reconciliation Service. Spurred on by an appreciation of the challenges that trustees are facing in this area, Veratta launched a GMP reconciliation costings calculator on our homepage, and Dennis Mincher asked if trustees could get value for money from GMP reconciliation exercises.

    Another hot topic that continued to develop through 2015 was the regulator’s focus on investment risk, with the publication of their Annual Defined Benefit Funding Statement 2015 in June. The key message concerned the need for integrated risk management, thorough covenant assessment, and considered investment strategy. Back in July, I provided my assessment of the questions that trustees needed to ask themselves in relation to their scheme funding obligations, and I also outlined how technology such as our integrated administration and actuarial valuation system, Mantle®, can assist in meeting their schemes’ goals. Since that time, I am pleased to say that not only has Mantle won the Engaged Investor Award for ‘Best New Technology’, but we have supplemented the system’s functionality with an Investment Risk Management module. The new functionality continues in the same revolutionary vein as the rest of the system, with intuitive analysis that seeks out optimum asset allocations, providing schemes with the best chance of meeting their funding objectives, while at the same time managing scheme-specific or sponsor-related risks. This addition represents a huge leap forward in providing trustees with the kind of integrated risk management analysis required to meet their obligations in an accessible and cost effective way.

    So, with this year’s events drawing to a close, here are my wild predictions for 2016:-
    1.    Donald Trump to be hacked… again.
    2.    HMRC to be bombarded by late applications to the Scheme Reconciliation Service.
    3.    At least one high profile case of huge errors relating to Auto Enrolment processing to be uncovered.
    4.    Mantle to win another award!
    Regardless of my predictions, I hope that 2016 brings you plenty of joy and success.  Merry Christmas!

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