GMP reconciliation: Digging up the bodies

Dec 15, 2015

With the arrival of the new state pension and the end of contracting out, schemes have until 2018 to clean up their act on guaranteed minimum pensions data, but they need to get in the queue by April.

In a 2009 report by the National Audit Office, ‘Review of errors in guaranteed minimum pension payments’, comptroller and auditor general Amyas Morse called the errors unearthed in cleaning up GMP data “a sad case of public administration failure”.

The NAO found that in the public sector alone, pensions had been overpaid to the tune of £90.2m, with underpayments of slightly more than £191,000 far from offsetting this (NHS underpayment data was not included).

At a trustee conference held by the Pensions and Lifetime Savings Association in London on Tuesday, its defined benefit policy lead Helen Forrest Hall called on trustees not to delay GMP reconciliation.

We will see trustees struggling with this issue and wondering how did this happen, and what are we going to do about it

John Broker, ITM

Getting in the queue with HM Revenue & Customs is important, she said, because HMRC will send out statements to members in 2018 before it “closes up shop” for its contracting-out service.

But pension schemes only have until April next year to register for HMRC’s Scheme Reconciliation Service; if they register late, the tax office cannot guarantee it will be able to deal with the query before closing down, according to Forrest Hall.

HMRC is closing these services because the end of contracting-out in April next year means GMP services will no longer be required. The new single-tier state pension from April means schemes will not be able to guarantee a minimum pension in lieu of the state second pension.

In September, HMRC had received expressions of interest from 2,605 live schemes and told 2,392 schemes what the GMP entitlements of 13m individuals are according to its own records.

Overpayments more common than underpayments

Cleaning up GMP records tends to reduce pension liabilities, said John Broker, director of data specialist ITM. “It is usually the case that overpayments outweigh the underpayments,” he said.

For those over state pension age who are in receipt of a pension, there will be difficult issues to resolve, he said, if they have been over or underpaid.

“In the next few months we will see trustees struggling with this issue and wondering how did this happen, and what are we going to do about it,” he said, adding that it has the potential to make tabloid headlines. “What we’re going to see is a lot of cases going to the ombudsman and some legal cases,” he predicted.

Trustees will have to decide if they will demand the overpaid amounts back, and whether they can afford to pay those that have been underpaid.

“There are difficult ethical issues for trustees to consider and resolve … and also legally what their rules do and do not permit them with regard to over and underpayments,” he said.

Broker added the GMP issue could further undermine confidence in pensions at a time when it is already low.

Putting costs into context

David Hepplewhite, director at consultancy JLT, said: “HMRC aren’t necessarily saying, ‘We are going to find lots of spare bodies’.”

Some trustees misunderstand what is required, according to Hepplewhite. “They are afraid of increasing costs,” he said.

Instead, value could be added to the scheme, which would put costs into context. “If you say it might save you an extra £1.5m in liabilities, they understand,” he said.

“The other thing is if you want to think about a buy-in or buyout it helps get a better price to have data reconciled,” he said.

And the Pensions Regulator has made it clear that this is part of what it considers good recordkeeping.

But schemes have to act fast. The later a scheme gets in the queue at HMRC, the longer it risks having to wait, Hepplewhite warned, saying there was a “potential for overload at HMRC”.

In its September ‘Countdown’ bulletin, HMRC said: “Currently there are 39 query files between 3-4 months old, we acknowledge that the waiting time needs to be reduced further and we are working to do this.”

Doing nothing is not an option for schemes, said Hepplewhite. “One of the challenges the industry has had is if they do nothing, it will be too late when they realise. They can’t go back to HMRC and say, ‘Sorry, we have made a mistake’.”


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