HM Revenue & Customs plans to provide defined benefit schemes with final guaranteed minimum pension data cuts by the end of July, despite confirming that some of this information might be out of date and unreliable for use in rectifying incorrect payments.
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.
In Countdown Bulletin 53, published on Thursday, HMRC stated that it has assessed the processes needed to issue the final data cuts, and now plans to complete these by the end of July 2020.
Schemes still need to take a view on how much reliance to place on HMRC’s GMP data in cases where differences with scheme records remain unresolved, noting some records could still change in future
Matt Davis, Hymans Robertson
The original timeline for the final contracting-out benefits data cut has been delayed several times before. Even now there is not an absolute guarantee about the new deadline being kept, as the taxman stated that the timeline is “dependent on changing departmental priorities”.
In addition, HMRC confirmed Pensions Expert reporting from May 14 that the data it has asked schemes to use for the calculation of members’ GMPs is outdated, further frustrating industry efforts to sort the mess.
In the bulletin, the taxman noted that its officials are aware of issues raised by pension scheme administrators, where differences have been noted between the final data cut sent to DB schemes and HMRC’s online database, called GMP checker.
“We have analysed a range of sample cases submitted to us and we can see instances where GMP information differs,” it stated.
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 bulletin added.
Taxman confirms outdated data
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 entitlement, and an 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.
When schemes eventually receive their final data cuts, they should check the GMP amounts provided against their own records, HMRC advised.
If there is a discrepancy, administrators should then use the online GMP checker service. If even after this there are differences in the figures, then these can be queried with HMRC, it added.
Due to this discrepancy, schemes and administrators should expect some headaches ahead as they try to finish GMP reconciliation.
More troubles ahead for schemes
Matt Davis, head of GMP equalisation at Hymans Robertson, explained that when this process kicked off several years ago, “it was hoped that HMRC’s final data cuts would put a close to uncertainty over GMP records”.
He said: “However, today’s update from HMRC confirms that it will still be possible for GMP records to be queried with HMRC in future.
HMRC admits errors in GMP final data cuts
HM Revenue & Customs has admitted that the data it has asked defined benefit schemes to use for the calculation of members’ guaranteed minimum pensions is outdated, which is expected to further delay trustees’ costly efforts to reconcile data with the taxman.
“This means schemes still need to take a view on how much reliance to place on HMRC’s GMP data in cases where differences with scheme records remain unresolved, noting some records could still change in future.”
Matt Ashton-Smith, head of consulting at ITM, warns that HMRC has not given a solution for the “cases that may look correct but are in fact wrong”. He gives as an example the case of a member who is perceived to have a zero GMP by both the scheme and the final data cut, but in fact has a benefit that can be retrieved in the GMP checker service.
He said: “Clearly this is an unwelcome complexity at a very late stage in reconciliation activities. It’s crucial now that schemes use the checker before calculating any benefit rectification.”
