PASA guidance urges schemes to prioritise GMP

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 and HM Revenue & Customs being unaware of some members leaving schemes, potentially inflating scheme liabilities.

Research conducted by consultancy Aon Hewitt in 2014 predicted GMP reconciliation would be the biggest challenge for schemes in 2015, but experts said this had not necessarily translated into action.

However the same survey looking ahead to this year found schemes still view GMP as a top priority. 

Source: Aon Hewitt Pension Administration Survey 2015. 

First steps

This guidance is the first of two phases made available to members. The second is due for release next month.

Phase one is divided into three separate sections:

• The first is entitled ‘First steps in data reconciliation’ and looks at defining the scope of any reconciliation exercise.

• The second section is entitled ‘Member level reconciliation’ and covers reaching agreement on which member population is entitled to a contracted out benefit.

• The third section is entitled ‘The role of tolerances in reconciliation and rectification exercises’ and explores the use of tolerances to prevent exercises taking exorbitant amounts of scheme time and money.

HMRC will issue statements to members with GMPs in December 2018, which could lead to more member enquiries.

Geraldine Brassett, chair of the PASA GMP working party, warned that because exercises could take between 18 months and two years to complete – depending on a scheme's size, complexity and history – schemes should act sooner rather than later. 

Brassett said: “The [Treasury] is planning to send letters to people at the end of 2018, confirming their contracted-out benefits,” adding this could lead to a large increase in member enquiries “if someone gets a letter and thinks they have an entitlement.”

We’re expecting an uptick from people reading that letter and then going to their pension provider

Helen Forrest Hall, PLSA

Helen Forrest Hall, defined benefit policy lead at the Pensions and Lifetime Savings Association, said HMRC's letter could lead to a flurry of activity from members.

She said: “We’re expecting an uptick from people reading that [letter] and then going to their pension provider.”

Spotting trends

Brassett said the best place to start is with a comprehensive look at the scheme and its members.

“What we find helpful is to do some knowledge-gathering about the scheme,” she said. “If you can build that knowledge, once you’ve got the data, the guidance then suggests doing sampling so you can see trends. If you can see trends you can often see a bulk solution.”

Anne-Marie Winton, partner at Arc Pensions Law, said many schemes were still taking a bit of an "ostrich approach" to GMP reconciliation, and you "almost have to get in a queue with HMRC to get your records sorted out".

She said schemes that were looking to complete a bulk annuity transaction or similar derisking exercise would be more likely to have begun reconciliation in order to help with pricing for the exercise.

However, for those that are not “there’s probably some reluctance to prioritise it”.