Slow responses from HM Revenue & Customs are delaying efforts by the Invensys Pension Scheme to reconcile guaranteed minimum pensions, the scheme’s trustees have told members.
The sheer volume of queries submitted to HMRC is understood to be frustrating many schemes’ efforts to reconcile GMPs in time for the December 2018 deadline.
In a spring newsletter to members, the £4.91bn scheme explained that the introduction of the single-tier state pension had meant that schemes that were formerly contracted out must reconcile their GMPs with the tax office.
But it reported that communication between the scheme and HMRC was continuing to slow down, making the trustee board’s original timeline look unrealistic.
You don’t want to take what HMRC are telling you you’ve got in GMPs
David Brooks, Broadstone
“The government is getting so many queries about GMP that it’s taking them longer and longer to respond,” the letter reads.
“This is despite their own deadline of December 2018 for all pension schemes to reconcile everybody’s GMP. As a result of these delays it’s taking us longer than we’d hoped to complete the reconciliation.”
It is not the first time the GMP reconciliation process has caused problems for the scheme. In July, chair of trustees Kathleen O’Donovan explained that the administration burden was preventing the scheme from carrying out planned pension increase exchanges.
HMRC did not respond to requests for comment by time of going to press.
A universal problem
Delays processing GMP queries are affecting many schemes. “I think it’s par for the course... clearly HMRC are under-resourced,” said Chantal Thompson, partner at law firm Baker McKenzie.
Given the delays and administrative hassle, it might be tempting for some schemes to ignore the issue.
But David Brooks, pensions technical director at consultancy Broadstone, said this could lead to significantly increased costs.
He said agreeing with HMRC’s records of GMPs usually leads to an increase in liabilities, meaning schemes should still put in the effort to reconcile records. “You don’t want to take what they’re telling you you’ve got,” he said.
Equalisation also delayed
While there is a firm deadline set for the reconciliation of GMPs, the government’s stance on equalisation of GMPs is far less certain.
The Department for Work and Pensions proposed a methodology in November, which it believes meets the EU’s criteria for equal treatment, but has not made this mandatory.
But, said Brooks, Brexit “would actually strengthen the obligation to equalise, because the government thinks you should equalise”.
However, Thompson said the lack of legal certainty would mean many schemes continue to delay equalisation. “In my experience, unless schemes are going to buyout... they aren’t in any hurry to equalise.”
Cumbersome underpins
The Invensys Pension Scheme is also taking voluntary steps to simplify its benefit structure, by removing a defined contribution underpin.
GMP reconciliation: Digging up the bodies
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.
DC underpins pay a member the sum of their notional pot – their contributions and a share of employer contributions – as a money purchase benefit, in the event that it is more valuable than the DB benefit they would otherwise receive.
In many cases, including that of Invensys, they come about because schemes have contracted out on a money purchase basis, giving members ‘protected rights’ benefits.
The scheme has increased the DB provision for any members where the DC underpin had value.
The GMP reconciliation deadline is fast approaching – how to get there if you’re late
With a large number of schemes calling on HM Revenue & Customs at the same time to complete their guaranteed minimum pension reconciliation, those that have not already started may struggle to meet the 2018 deadline. But is it too late?
“DC underpins are like ashtrays on aeroplanes – they were conceived at a time when our outlook on the world was very different, but when you see them now you think, ‘Why the hell are they still here taking up room?’,” said Daniel Taylor, director at administration specialist Trafalgar House.
Taylor said that because underpins require tricky supplementary calculations to be made, removal lightens the administrative burden.
“If trustees have the opportunity to end this 30-year hangover, then they should. It will simplify administration and get rid of another pointless complication,” he said.
