HMRC admits errors in GMP final data cuts

For several years, scheme administrators have been trying to ensure that their records on GMPs – the minimum payments they provide members who contracted out of the state earnings-related pension scheme – are correct, by comparing their data with that provided by HMRC and querying the taxman when the data does not match.

All schemes that have queried HMRC through the scheme reconciliation service are in the process of receiving a final data cut from the government, previously slated for December 2019 but now delayed until further notice. 

However, in an email sent to pension professionals who had queried the data, seen by Pensions Expert, a HMRC official explained that there can be differences between the final data cut sent to DB schemes and the taxman’s online database, called GMP checker.

The acceptance by HMRC that there are some known areas of weakness in scheme reconciliation service files will not come as a surprise to the industry

Matt Ashton-Smith, ITM

This is due to the fact that the final data cut is “is a ‘lift’ of GMP held at one point in time, whereas the online GMP checker service provides a real-time GMP amount calculated at the point of request”, the official said.

“The online GMP checker will always show the most recent and accurate calculation. Where you can’t agree the GMP amount provided in your data cut, you should use the online GMP checker service.”

These guidelines will be part of HMRC’s next countdown bulletin to administrators, the official noted. This could mean trustees and administrators might have to review all their GMP cases once more, in a process that has already been delayed previously, specialists have warned.

HMRC data ‘frozen’ in 2016

GMPs were created due to contracting out, which meant DB schemes could prevent their members tripling up on pension benefits by building up a basic state pension – Serps – and an earnings-related occupational pension. In exchange for giving up 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 GMP over and underpayments, and schemes were urged to reconcile their records with the taxman before rectifying incorrect payments.

The problem with the data sent by HMRC to schemes is that it refers to 2016 figures - even though a member cannot accrue GMPs after that, it will continue to revalue until the individual reaches GMP age.

A HMRC spokesperson said: “The scheme reconciliation tool works as intended to revalue the GMP for scheme members up to April 5 2016.

“The purpose of the reconciliation was to enable pension schemes to reconcile the membership of the pension scheme, plus assure that the GMP amount matches ours, based on the calculation up to this date.”

Matt Ashton-Smith, head of consulting at ITM, explained that “the acceptance by HMRC that there are some known areas of weakness in scheme reconciliation service files will not come as a surprise to the industry”, which has been forced to incorporate checks into GMP reconciliation processes “over the past few years to attempt to identify such members for whom the administration data should be accepted in favour of HMRC”.

Data brings more questions than answers

Scheme administrators have been grappling with GMP reconciliation for several years now. Alan Casey, senior consultant at LCP, explained that data from HMRC has made the process even more complicated, with hundreds of additional members appearing in some cases.

He said: “It had been hoped that the much-delayed publication of final listings by HMRC would bring closure to this task, but instead it is opening up new questions. In particular, there are discrepancies between the final listings and the live HMRC database that can be accessed through the GMP checker service.”

Mark Williams, principal and London retirement practice leader at Buck, explained that establishing whether the correct GMP figure is the one sent by HMRC, the one held by the scheme, or that being shown in the live database will be difficult.

One of the consequences of this is that schemes will take longer to finalise GMP reconciliation.

“We had thought this final data cut was a long way to clearing things up, but in fact what it appears to have done in many circumstances is delay it further – this could add months to the process for the larger, more complicated schemes,” Mr Williams said.

“This is yet another frustration, as we thought this data would clear things up and unlock the next phase of the project.”

Mr Ashton-Smith argued that it would be sensible for schemes that have already reconciled members, but not yet applied rectification corrections to member records, to carry out a final analysis of their data, “supplemented by some additional GMP checker data”.

“This would potentially allow further members to be accepted as matching between the two data sets, and ensure that the best possible position is established before carrying out rectification of the members’ records where required, and then subsequently GMP equalisation,” he said.

For pension funds that have already rectified member benefits, “it is a reasonable assumption that these data weaknesses were captured during the process”, Mr Ashton-Smith added.

“However, some schemes may wish to run checks to confirm this and identify any cases that need a further amendment.”

Delay brings increased costs

When the GMP reconciliation project kicked off several years ago, schemes and administrators would have agreed on a budget for reconciliation projects, probably upfront, and they “would have expected that this data cut was simply a confirmation”, Mr Williams explained.

But due to the delays and additional checks needed, it is expected that pension funds will incur some additional costs, he noted. “If decisions have to be revisited, that is also more trustee and adviser time spent in considering making those calls.”

Mr Ashton-Smith, however, expects these increases in costs to “be marginal in most cases, and decisions should be able to be made quickly”.

“When schemes do obtain these final files from HMRC, then they can be assured they have HMRC’s last word on GMP reconciliation, and can therefore press on to complete rectification, equalisation and indeed other projects they have had to put on hold while resolving GMP matters,” he added.