Many pension schemes will have missing members to whom benefits are due but cannot be paid as they are not contactable.
As people move house, change their name or change their contact details, they may update as many organisations as they can with their new details. But what happens if they don’t update their pension scheme? Are trustees obliged to try and trace them? And, if so, how proactive do they need to be in doing so?
Some schemes may already include member-tracing exercises as part of any regular data cleansing activities they undertake, in line with The Pension Regulator’s (TPR) guidance for ongoing schemes. Others may have carried out tracing exercises in recent years as part of data cleansing on projects such as risk transfers and the implementation of guaranteed minimum pension (GMP) equalisation. For some schemes, the arrival of pensions dashboards will bring into focus the quality of their data and what to do about missing members.
Should schemes trace missing members? Trustees have a duty to administer their scheme in the best interests of the members. Clearly, they are serving the interests of missing members by taking steps to trace them. Tracing them can also be helpful, as trustees and employers look towards future projects, such as risk transfers, or a scheme’s end-game strategy, as a scheme will remain liable to pay missing members’ benefits whether or not they can be traced.
However, tracing can be time consuming and expensive. It only benefits the missing members so may not be in the interests of the membership as a whole. So what should trustees do?
There is a balance to be struck between seeking to trace missing members in order to pay their benefits to them and managing the scheme’s resources in the interests of the wider membership, particularly where a missing member’s benefits are small.
As with many issues for trustees, the key is to take a proportionate approach. What is proportionate will differ from scheme to scheme. It may depend on the extent of the tracing the scheme has undertaken to date; the size of missing members’ benefits; and the time and cost involved in taking further tracing measures.
Tracing members has traditionally involved placing adverts in local or national newspapers, using a professional tracing agency or consulting the wider membership or the scheme’s employers if appropriate.
But, while those options are still available we are also seeing schemes consider more innovative options such as getting in touch with members through social networking sites or using an employer’s alumni network. These options are potentially more cost effective and, depending on the make-up of a scheme’s membership, may be more likely to yield a response.
Winding up a scheme is a whole topic in itself but when it comes to tracing members prior to a winding up, many of the same considerations as mentioned above will apply.
But, importantly, organisations will also need to understand how to deal with the benefits payable to any members that cannot be traced, and what protections trustees have, or might want to have put in place, to manage the risk of claims from missing members who emerge after a scheme has been wound up.
Sarah Clay is senior associate at Sackers