It will become increasingly essential to have the correct data on superannuation fund members in order to manage risk, according to an Australian Prudential Regulation Authority (APRA) executive.
Speaking at the Conference of Major Superannuation Funds (CMSF) on the Gold Coast, Ramani Venkatramani, general manager, specialised institutions division, APRA, said data integrity is the “industry’s lifeblood” and that it is “essential for all prudentially regulated industries”.
A number of issues plague the industry and increase the significance of maintaining member data adequately, he said, also putting forth APRA’s expectations, which included coverage of data in risk management and internal audits.
Venkatramani said the ability to fix issues deteriorates with time and that while so far there is no evidence that data issues have adversely affected member entitlements, the nature of the industry and experience of other markets show it can become a major issue in the future. According to UK figures from December 2008, 100,000 public service pensions have been incorrectly calculated since 1978.
“We must raise this as a serious issue in trustees’ minds,” Venkatramani told delegates, arguing it was essential to upgrade governance and risk management policies and procedures.
Also speaking at the workshop, Howard Rosario, chief executive, Westscheme, said it was important to discharge the trustee’s fiduciary duty, manage risk and communicate with members.
“Trustees’ fiduciary obligation is to an individual,” he said. “That’s how trust law works.”
Rosario stressed the significance of maintaining proper data in order to manage risk, pointing to the possibility of negatively impacting asset allocations with bad data.
“It will drain liquidity and strain administrative resources if corrupt data makes changes [for members] more difficult,” Rosario said.
Venkatramani later noted that industry investigations have identified two major tendencies, “deliberate indifference and conscious avoidance”, and problems found included financial losses, critical data errors, incorrectly paid benefits and a failure to follow up data errors systematically.
Venkatramani also cited issues revealed through APRA research. “Recent liquidity updates showed limited trustee ability to extract useful information at short notice,” he said, further noting there was no uniform practice to test and cleanse data.
He said the internal audit focus should be improved and that a greater alignment with risk management was necessary.
“The price of naive compliance? The biggest concern are trustees who ‘wisely’ think there is no issue,” Venkatramani noted in his presentation. He said APRA would prefer “small dollops” of smaller emergencies rather than “a tsunami” to uncover data integrity issues. “We need a class action before we’ll wake up,” he added.
