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    A contracted-out reconciliation checklist

    By Tom Nimmo on Friday, February 19, 2016

    Hot on the heels of the first tranche of guidance on GMP reconciliations from the Pensions Administration Standards Association (PASA), I thought that I would take a stab at drafting my own service provider benchmarking checklist for pension schemes about to engage in a contracted-out reconciliation exercise. With PASA’s own checklist due to be published soon and the imminent end of contracting-out on the 6th April, this really is a subject that managers of contracted-out pension schemes should be considering.

    I’m going to base my checklist around PASA’s GMP Reconciliation Process Map in order to keep things consistent and to hopefully allow comparisons to be drawn with PASA’s checklist once it is published. However, in addition to the actions set out in the process map, I am going to preface the exercise with a stage that I see as crucial to the overall success of any contracted-out reconciliation project. So without further ado, here is my benchmarking checklist:-


    This simple stage is so often overlooked, which is crazy, when the decisions made here affect every other stage of the process.

    • Project scope and goals - What do you want the scheme to gain from the project? From the answers to this question, you can begin to quickly determine whether your in-house team or out-sourced service provider can meet your requirements.
    • Assess your resources - Does your in-house team or out-sourced service provider have enough experience, expertise, capacity, and technological support to complete the project? These factors, and especially that of technology, are of continuous relevance throughout the project and so I’ll expand upon this subject in the subsequent stages.
    • Costs and timescales - When do you want the exercise to be completed and what costs do you expect to incur? There are potentially complex considerations to make in this area from in-house staff and technology costs, versus the costs of out-sourcing all or part of the process as well as the potential cost benefits that could be realised from completing the exercise.


    By this stage, you may have already chosen to go it alone, or to engage the services of an out-sourced specialist. However it is important to understand what you should expect out of the initial analysis to ensure that you receive a quality service and to identify if the project plan needs to be reassessed.

    • Understanding the Scheme - Does the project team have the ability to understand the pension scheme’s history and rules? There is not a one-size-fits-all approach to contracted-out reconciliations. Making sure that the people engaged in the process know about the specific circumstances of the pension scheme, will help to make the analysis more targeted and efficient.
    • Data management - Does the project team have the right skills and tools? As the analysis will involve at least two large datasets, the ability to manipulate and analyse large datasets requires specific knowledge and experience. The ability to work with data in bulk is essential to pick up on data quality issues, and efficiently reconcile the basic records. Unchecked errors at this stage can snowball into significant issues later in the process.
    • Structuring the analysis - Will the initial analysis work enable the rest of the process to be completed with accuracy, control and efficiency? You need to be satisfied that the combination of data management expertise, technology and technical pensions knowledge will be applied to the initial data analysis to ensure that insightful results can be gained from the process, whilst minimising the burden of work required to complete the rest of the project. In the initial analysis stage, tolerances should be easy to set and adjust.
    • Initial reporting - Will the initial analysis results and report provide enough information to report back to HMRC, or make decisions about further actions? The initial report should provide clear summary statistics to aid decision making with regard to any further actions, with the budgets and timescales to back it all up. The overall results should be well structured and contain enough relevant information on individual members to report back to HMRC or to investigate any issues.


    By this stage, you should have a clearer picture of the remaining work involved in the project, but this stage is also potentially the most open-ended part of the process. The reason for this, is that unless investigations are focused on dealing with the issues in a pragmatic and organised way, the costs and timescales could easily spiral out of control.

    • Sampling and scenario testing - Does the project team possess the tools and expertise to complete sampling and scenario testing in bulk? This analysis is a way of dividing the membership into groups of similar members and running tests to determine the root causes of the issues affecting them. Testing of this nature requires an extremely high level of pension scheme administration experience and excellent technological support, but the process can rapidly reduce the number of outstanding queries in the data.
    • Communicating with HMRC - Does the project team have experience of effective interaction with HMRC? What should be a relatively straightforward exercise is likely to be slightly complicated by the sheer volume of queries that HMRC will be dealing with in the next two years. A history of working closely with HMRC is therefore beneficial to moving issues forward and reporting on reconciled cases.
    • Unstructured data - Does the project team have the ability to review unstructured data sources accurately and efficiently? At some stage it will probably be necessary to review historical sources of data such as paper member files or uncontrolled spreadsheets. Reviewing these data sources can be time-consuming and the information that they provide can be unclear, inaccurate, or open to interpretation. Therefore, review of these data sources must be well managed and involve experienced staff to avoid unnecessary work, or errors entering the main dataset.


    With investigations complete, further reports drafted and information communicated back to HMRC, there is still likely to be a requirement for some degree of corrective action to the pension scheme’s administration records. The rectification stage is where well-managed projects will bear fruit as the organisation and efforts of earlier work enable efficient bulk processes to be completed.

    • Adjusting records - Does the project team have the ability to make controlled updates to the dataset? This is partly about process, but also about technological support and pensions administration knowledge. Wherever possible record adjustments should be completed in bulk, quality controlled, and fully reconciled with any source data.
    • Calculating over/underpayments - Can over/underpayments be completed in bulk? Linked to record adjustments, any benefit adjustments that result in a material correction to the amounts already paid to members can be extremely complex to rectify and the results can have significant consequences. Members may have to repay monies to the scheme, or the scheme may have to increase benefit payments, all of which can impact scheme cashflows. Therefore, this process requires a high degree of technical pensions ability and advanced data management skill to complete effectively.
    • Audit trail - Does the process keep an audit trail of all updates and adjustments to the data? This factor actually applies to all data processes from the initial analysis onwards and its importance cannot be stressed highly enough. This checklist hints at just how large and complex contracted-out reconciliations can be and so if something goes wrong, or if members query or challenge their benefits in the future, a full record of every change in the data needs to be available. Whilst this might seem like an administrative nightmare, good processes and systems can make this requirement a formality.
    • Member communication - Can member communication exercises be completed in bulk? Ensuring that members receive the right information in the right way is crucial to reduce member queries and to provide clarity in situations where a financial change is occurring. The project team needs to have the appropriate data and the ability to explain complicated subject matter in a way that is easy to understand.

    So that’s it: four stages and fourteen factors to consider in the contracted-out reconciliation process. I haven’t mentioned the ongoing process of maintaining the records upon completion of the exercise, but that is just one additional process that I could tag onto the end of this checklist.

    I will follow up on this blog once PASA have published their own checklist, but if you agree, disagree, or think I’ve missed anything, I’d welcome your comments. Furthermore, if you would like to discuss you own scheme’s contracted-out reconciliation, please get in touch.

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