Why data work matters

PRT Insights – November 2022

As the old saying goes, the best preparation for tomorrow is doing your best today. That’s especially true when it comes to annuity purchases. We often see plan sponsors wanting to move quickly to complete an annuity purchase, and as a result, the time, effort and cost needed to confirm data and conduct life audits may not be perceived to be a worthwhile exercise.

Experience tells us, however, that sponsors who have not done the “data work” are at risk of receiving less-than-optimal premium quotes. When there is doubt about the quality or completeness of data, the annuity provider will often assume the worst in their pricing. Assumptions about the number of living members and job types, for example, will have a material impact on the premium.

Eckler’s best practice recommendations

The cost and effort of conducting more rigorous data preparation in advance of the purchase process are nominal relative to the savings, which are generally recognized in the premium cost. To receive the best pricing and ensure readiness to act when the timing is right, Eckler suggests that plan sponsors who are considering an annuity purchase proactively ensure that their member data is complete and updated.

In the table below, we share specific data types that should be verified and the potential impact on pricing.

Data Verification

Plan members are still living, including:

  • Pensioners
  • Deferred vested members
  • Joint annuitants to whom survivor benefits are entitled

Pricing impact

Fewer benefits required to be paid out will result in lower single premiums.

Proof of age documents for all members and joint annuitants are on file and electronically accessible.

Implementation and administration fees are less when this information is readily available.

Changes to many members’ dates of birth can materially alter the mortality composite of the overall group. For plan sponsors who complete this data verification step after annuities are secured, too many changes can trigger a repricing under new market conditions.

The following information is documented for each member:

  • Job title or type at retirement or termination
  • Annual salary information, and the applicable reference date
  • Collar type and union status
  • Province of employment and residence
  • Residential postal code
  • Highest level of education (if available)

With this type of information, insurers can better ascertain risk profiles and match groups more closely to appropriate mortality assumptions. Groups with shorter durations will have better pricing.

It is the goal of every plan sponsor to help protect the retirement security of their plan members. At Eckler, that’s our goal too. We do this by helping our clients obtain the most competitive pricing for pension risk transfer transactions and ensuring smooth administrative transfers. Quality data preparation is an important step in achieving this goal.

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This article has been prepared for general information purposes only and does not constitute professional advice. The data presented herein is from third-party sources (primarily data collected directly from insurers) and Eckler has not independently verified, validated or audited the data. Eckler makes no representations or warranties with respect to the accuracy of the information. Nothing in this report should be construed as investment, legal or any other type of professional advice. Eckler is not responsible for the consequences of any use of the information presented in this report and does not accept any liability for errors, inaccuracies or omissions.