Over and under payments resulting from incorrect GMPs need to be tackled before the April 2016 pension increase deadline – and the deadline is looming.
Funds need to do their utmost to make sure as many members who are post SPA or approaching SPA have correct GMPs before the next round of scheme pension increases. This means making a huge effort to reconcile GMPs and deal with over and under payments in the next few months. Achieving this will reduce the need for extra reworking later and so save costs. Pension Boards will need to review their policies regarding over and under payments and also consider the various ways of rectifying incorrectly split pensions.
The Pensions Regulator (TPR) recently published their compliance and enforcement policy for public sector schemes. The policy makes it clear that data accuracy is a key indicator of Fund risk and, of course, holding the correct GMPs for the correct people is a large part of data accuracy. Therefore, it’s vital for compliance that Funds check their GMP data thoroughly. ITM has developed a comprehensive suite of data quality tests for Local Authorities to help Pension Boards comply with the TPR requirements and to avoid penalties.
The recent Ombudsman decision concerning commutation factors means that Funds are in the process of reviewing their data and rectifying members where appropriate. ITM can assist you with rectification exercises.
At the outset of a GMP reconciliation it is vital to analyse for an individual Fund how over and underpayments will be handled. Advice should be taken on how members will be compensated, including the formulae to be used, legal and actuarial issues.
A key aspect to managing over and underpayments is planning communications to members. ITM can assist you with a member communications strategy.
One of the key decisions during a reconciliation is the size of the difference between the Fund’s GMP figures and those of HMRC where the Fund will simply accept HMRC’s figures and adjust their records.
The chart below shows the effect of setting a £2 pw tolerance versus a £5 one.
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