Pensions professionals have said guaranteed minimum pension equalisation will be their biggest project in 2015, a survey has shown, as the end of contracting out forces schemes to undertake exercises.
Schemes that contracted out of the second-tier state pension between 1978 and 1997 were required to provide GMPs to members.
In some cases, poor record-keeping led to incorrect amounts being paid to members and HM Revenue & Customs being unaware of some members leaving schemes, inflating liabilities.
Aon Hewitt’s Pensions Administration Survey 2014 asked scheme professionals what their pensions priority for the next 12 months would be. The largest group of respondents (29 per cent) said GMP reconciliation.
Richard Murphy, partner at consultancy LCP, said: “I would have said the Budget is number one myself, but a solid number two is GMP reconciliation.”
Murphy described GMP reconciliation as divided on two levels: making sure people were receiving correct GMPs and removing undue liabilities from the scheme.
“The first level of truing up the ones where the benefit is slightly wrong will be pretty straightforward,” he said.
“But... HMRC thinking people have a liability will be harder. [It’s] good news the schemes are focusing on resolving this.”
The number of queries that we have received following issue of the data is much lower that expected. It is important that pension scheme administrators return any queries to HMRC as soon as possible
HMRC
Contracting out comes to an end in April 2016 with the introduction of the single-tier state pension. After this, schemes have a further two years to reconcile their GMPs.
Monica Cope, chief operating officer at scheme data specialist Veratta, said reconciliation would become more difficult after HMRC’s reconciliation service closes in December 2016, but added schemes had not used it enough.
She said: “4,800 contracted-out schemes are affected. [There’s] quite a lot to deal with and not a large uptake so far.”
HMRC’s most recent 'countdown' bulletin raised similar concerns, stating: “There has been a positive take-up of the scheme reconciliation service and HMRC has received 1,889 requests and issued records for 1,175 schemes.
"However, the number of queries that we have received following issue of the data is much lower that expected. It is important that pension scheme administrators return any queries to HMRC as soon as possible to help us manage the scheme reconciliation service effectively.”
Faith Dickson, partner at law firm Sackers, said the interest was driven by the end of contracting out. "HMRC are too, to an extent, because they know if everyone leaves it to the last minute they wouldn’t have the resource to have the kind of conversations they need to have with schemes,” Dickson said.
Anne-Marie Winton, partner at law firm Nabarro, said schemes should dedicate around a year to sorting out their GMPs. She added that complexity was the reason many schemes have not undertaken this exercise yet.
“Schemes have... the ability to convert GMP into normal benefits. I’ve never given that advice; I think that falls into the category of too complicated.”
