We do not like to talk about death. Even though it is part of an administrator’s daily routine, it is a subject many of us prefer to avoid.
But the truth is, mortality screening is a fundamental part of pensions administration, and without it pension schemes would be a mess of overpayments, recovery procedures and wasted money.
Mortality screening is the process of checking the continued existence of every single person in receipt of a pension. Quite simply, pension schemes should regularly check that their recipients are still alive.
Things can quickly go awry for schemes that fail to do this. Payments to deceased pensioners mount up, the risk of fraud rises significantly and derisking costs can also increase.
Overpayments to deceased pensioners
Payments being made to deceased members is a very real danger for schemes. For evidence of this, look no further than the example shared by the Northern Irish Audit Office in 2018.
Between April 2016 and March 2018, a group of 80 public sector bodies were subject to data-based screening by the audit office. Intended to identify incidents of fraud and overpayment, the initiative saw £1.9m of taxpayers’ money recovered.
It was not just fraud that came to light. Pension errors and overpayments amounted to a massive £648,000, including several incidents of deceased pensioner overpayments.
In one case a pensioner died in February 2015, but the administrator was not notified, resulting in an overpayment of £8,506. A similar case saw another deceased pensioner overpaid by £7,935, which was subsequently paid back in instalments by the deceased’s next of kin.
Solutions to UK mortality screening
Good-quality pensions administrators should operate automated monthly screening for all UK pensioners to quickly check the continued existence of everyone receiving a pension. It is completely non-invasive, and all performed through the wonders of modern technology.
Data is cross-referenced against publicly available death registers and, where there is a match, pensions are suspended with further investigation performed for high-probability matches. By undertaking this process monthly, administrators can avoid mistakenly paying deceased pensioners and bypass time-consuming recovery processes.
Whilst pensioners are the natural focus for mortality screening, it also has a place for deferred members – especially for schemes approaching a triennial valuation. A bulk screening exercise can quickly establish whether all deferred liabilities that schemes are valuing are valid.
What about overseas beneficiaries?
Whilst mortality screening in the UK is now a simple process, it is a different story when it comes to overseas beneficiaries. Each country has its own procedures and registers for recording and registering deaths, and there is no publicly available central death register for those who reside overseas. Therefore, managing an effective, automated system to report on pensioners’ mortality is far more difficult.
The two solutions currently in mainstream use are not without their problems. The newest option relies heavily on technology, but the very demographic this tech targets is the one least likely to embrace innovation or engage with new ideas.
This means traditional paper-based self-certification processes are still commonplace, where the administrator sends each beneficiary a form to sign and return to confirm they are still alive. The security gaps in this process are self-evident, as is the macabre absurdity of asking a person to certify their own existence.
The self-certification process is invasive and triggers a large number of complaints. It is also incredibly time-consuming and open to huge margins of error and abuse. Over the long term we hope the adoption of technology will gradually improve the effectiveness of this process but, for now, many schemes still rely on manual certification.
Action points for trustees and pension managers:
- Check that your administrator is performing automated mortality screening checks for UK residents. Not all administrators include these tests in their core service and it can sometimes be an optional extra. Checks can take place monthly, quarterly, biannually or triannually. The rule of thumb is: the more frequent the better.
- It’s rare for mortality screening for deferred members to take place automatically, but it is a valuable process to follow before your valuation as it commonly removes unnecessary liabilities from your population. Check what your administrator is doing as part of the core service and discuss performing this check before your next valuation. You should start this process three to six months before the valuation date.
- Overseas existence checks are important but can upset scheme membership. No solution currently available can provide a totally non-invasive check against this population. Plan for these exercises carefully, again ideally before your valuation date, and agree with your administrator the process most appropriate for your membership.
Claire Montgomery is clients project manager at Trafalgar House