The government’s delayed timeline for confirming payments due under guaranteed minimum pensions reconciliation will be published soon, HM Revenue & Customs announced on Thursday, as it attempted to put an end to long-running confusion over partial payments.
A timeline for final data cuts had been promised in December. While HMRC missed this deadline, its countdown bulletin did accept a proposal for schemes to allocate top-up payments they owe to specific members, helping to clarify and isolate situations where schemes and the taxman are still in disagreement about who is owed what.
Experts welcomed the clarity this decision brings on contracted-out pensions, but worried that this will delay the GMP rectification project even further, as well as equalisation.
Contracting out meant defined benefit schemes could prevent their members tripling up on pension benefits by building up a basic state pension – the state earnings-related pension scheme – and an earnings-related occupational pension. In exchange for giving up the Serps, both employees and employers paid less national insurance contributions.
In 2016, HMRC discovered that some pensioners had been paid contributions to their NI when in fact they were contracted out. The difference in records led to over and under-payments, and schemes were urged to reconcile their records with the taxman before rectifying incorrect payments.
More than three years after contracting out was abolished, we are still trying to disentangle the mess
Sir Steve Webb, Royal London
Schemes need to identify members
In its Countdown Bulletin 50, the taxman announced that it has reviewed a proposed solution for partial payments in GMP rectification cases.
Despite HMRC’s scheme reconciliation service having closed, some schemes are still in disagreement with the taxman about whose records are correct for specific members, and have opted to pay part of the money they owed as an interim solution. This was typically done by larger schemes, which are more likely to have discrepancies between their own and HMRC’s GMP records.
Mark Williams, principal and London retirement practice leader at Buck, explained that as HMRC had previously amalgamated scheme payments and allocated them first to the oldest “contribution equivalent premiums”, some schemes have been presented with additional bills – known as GMP deficits – that they see as incorrect.
Pension scheme administrators will now be able to tell the taxman which member the payment refers to.
Mr Williams said: “You can now be completely clear to whom the part payment is made exactly. Schemes will be able to say that these payments are required for X, Y, Z members, and you know that HMRC are going to allocate that payment to those members, whereas before there would be an asymmetry.”
Further delays ahead
Mr Williams noted that the announcement from the taxman is a minor change that is welcome in isolation, but the impact on the final data cuts is “slightly concerning”.
In the bulletin, HMRC stated that the change means “a revised data cut timeline will be published when the allocation timeline is understood”.
Mr Williams said: “The absence of this final data cut is a problem, because it is preventing trustees and administrators from getting on with the work required to do the rectification and to progress on the work needed for equalisation.”
Matt Davis, partner and scheme actuary at Hymans Robertson, noted that this is not the first time HMRC has pushed back these timescales.
He said: “The industry is waiting on this data to calculate which members may be due uplifts in pensions. It is better for members if we could pay them earlier rather than later.”
Sir Steve Webb, former pensions minister and director of policy at Royal London, noted that this latest delay is “a reminder of the huge administrative complexity that surrounds the whole issue of contracting out, GMPs and the like”.
He said: “More than three years after contracting out was abolished we are still trying to disentangle the mess. HMRC’s original timetable for resolving these matters was always unrealistic.
“This further delay shows that HMRC had little idea of the state of scheme data and of their own capacity to complete this process.”
HMRC promises new update
Following the publication of the bulletin, a HMRC official sent an email to pension scheme administrators – seen by Pensions Expert – acknowledging concerns raised around the announcement.
“We intend to issue Countdown Bulletin 51 next week. This bulletin will detail the next steps you need to take in order for HMRC to issue your final data cuts,” the official said.
“We will also arrange, and issue an invite to, a one-off forum to discuss the content of Countdown Bulletin 51 and address any queries you might have.”
Most schemes considering joint GMP rectification and equalisation
Most pension schemes expect to combine their guaranteed minimum pension rectification and equalisation projects, new data suggest, as experts said this can simplify member communications and increase efficiencies for trustees.
HMRC declined to comment on the contents of upcoming bulletins until they are published.
Barnett Waddingham pension management consultant Owen McCrea welcomed the added clarity: “A lot of schemes are placing importance on using the final cuts of data to be able to progress with rectification and equalisation in an appropriate manner.
“It is really important to understand whether we are getting those final cuts imminently, or if we need to consider another approach to move on to rectification and equalisation.”
