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    A Guide to the GMP Reconciliation Guidance

    By Tom Nimmo on Wednesday, March 09, 2016

    With the publication of the Pensions Administration Standards Association’s (PASA) second tranche of guidance on GMP reconciliations, it is judgement day for my own attempt at a benchmarking checklist for the process. Through the following comparison of PASA’s guidance and my own, I hope to draw out the important themes and factors involved in seeing the GMP reconciliation process through to a positive conclusion.

    General Observations

    PASA’s guidance is comprehensive in detailing the specific rectification scenarios that pension schemes may face over the course of the exercise. These scenarios are discussed in terms of the legal governance framework and the effects of rectification on both project costs and member experience. This is in contrast to my own checklist that rather unsurprisingly focused upon the technical process and data management requirements of the exercise.

    Approach

    I previously stated that there is not a one-size-fits-all approach to contracted-out reconciliations. This sentiment is reflected throughout PASA’s guidance with the acknowledgement that trustees and employers must exercise judgement throughout the various stages of the process in deciding how to progress their projects. The approach is driven by legal obligations and costs, but PASA also mentions the importance of possessing the right information to assist the decision making process.

    In relation to adopting an approach, PASA regularly employs the word ‘appropriate’ when discussing potential courses of action. Quite often, the appropriate action for the pension scheme to take can only be ascertained through additional analysis and testing, such as reviewing the effects of altering reconciliation tolerances. This really highlights the importance of seeking the right information, to make the right choices and getting the subsequent actions right first time.     

    Reporting

    I had mentioned the benefits of clear reporting, but PASA also adds to this the need for consistency in the structure of the reported information. By keeping the reports consistent throughout the process, the rectification stage should be easier to manage. This consistency in reporting information compliments a well-planned approach, and so it really emphasises how mutually beneficial each part of the process is to the overall outcome.

    Data Validation

    Beyond the initial reconciliation analysis, much of the subsequent work will hinge upon considerations relating to the quality and availability of the data in the pension scheme’s administration records. PASA mentions the need for specific items of member data, such as service and status dates, as well as the constraints that can be imposed by missing historical member information, such as pension increase histories. This data validation analysis has the potential to be even more demanding than the initial GMP reconciliation analysis, especially if it is not automated and easily repeatable.

    The impact of data quality will permeate the entire process from the ability to complete bulk calculations to the range of options available to trustees in addressing over and under payments. Looking back on my own guidance, I have not dedicated an entire section to data validation at any stage of the process. Instead, data quality is mentioned throughout the analysis, investigation and rectification stages, from picking up on data issues, to dealing with unstructured data sources and adjusting member records.

    Complexity

    Time and again in the guidance, PASA recognises that the GMP reconciliation process is inherently complex. One of the commendable features of PASA’s guidance is its attempts to cut through some of complexity involved especially when dealing with the various over and under payment scenarios. It also provides practical advice to help pension scheme trustees and sponsoring employers consider the costs involved in completing the various stages of the exercise.

    In my own guidance checklist, I have attempted to detail a technical approach that uses a combination of pensions experience, computing power and data management expertise to minimise the complexity involved in the analysis of data and the calculation of benefits. In my opinion, PASA’s repeated mentions of complexity only serve to reinforce my assertion that the structuring of the initial analysis is crucial to both insightful reporting and reducing the burden of work required to complete the rest of the project. This can be demonstrated by the fact that in Guidance Note 5, PASA mention the potential for additional costs to be incurred in the precise calculation of over and underpayments; something that our own approach seeks to automate as standard for no additional cost.

    Communication

    The PASA guidance does not mention the need for effective interaction with HMRC, but member communication is highlighted as a key consideration in the process. PASA has a clear preference toward bulk communication wherever possible, in much the same vein as my own guidance. Furthermore, it is clear from reviewing the scenarios that result in a material reduction to member payments, that the efficient organisation of member communications are important, to ensure that the timing of letters provides suitable noticed periods before changes to benefits are implemented.

    Automation

    Bulk communication exercises are not the only process that could benefit from automation according to PASA. In fact, PASA advocates the use of bulk data processing wherever it is cost effective and appropriate to do so in the GMP reconciliation project. PASA mention that in automating certain processes, there will be a requirement to draft agreed benefit specifications and then code calculation routines based upon the relevant factors. This process aligns with the necessity that I place on having a project team with a skillset across disciplines, from data analysis to technical pension scheme administration ability.

    In reading PASA’s guidance, another important practical factor that came to mind in relation to the coding of calculations was that of system flexibility. Some pension scheme administration databases will not be flexible enough to manage the kind of calculation coding and data analysis required during the GMP reconciliation process. The use of alternative means such as spreadsheets to conduct bulk data work may present a familiar and straightforward alternative, but this needs to be weighed up against the loss of control that databases offer to data processing and storage.

    With the potential to make sweeping changes to benefit data and other scheme membership information, combined with the obligation to get analysis and updates right first time, audit trails and robust processes become imperatives. The need for an audit trail seriously impacts upon the suitability of spreadsheet tools to conduct the data analysis and update work involved, since they tend to lack data and process validation controls. Audit trails are not really emphasised explicitly by PASA’s guidance, but it is a factor that our own GMP specialists have discussed time and again at GMP reconciliation seminars and working groups with the Pensions Management Institute and HMRC. The ability to be able to easily review what was done and understand why at every stage of the project could prove invaluable when dealing with member queries, or completing subsequent exercises, and it provides a safeguard should changes need to be reversed.

    In Conclusion

    The PASA guidance is an extremely useful resource for pension scheme trustees, sponsoring employers and pension fund managers engaged in any stage of the GMP reconciliation process. It provides comprehensive guidance around both governance and technical considerations that would be hugely useful to the planning and organisation of each stage. However, the guidance also highlights the complexity of the tasks involved and the importance of making appropriate decisions based upon the right information throughout the project.

    A best practice approach, tailored to the individual circumstances of each pension scheme is at the heart of the approach we have developed at Veratta. We can take our knowledge and experience of completing GMP reconciliation exercises; combine it with an unrivalled pension scheme administration system and apply our process framework to your pension scheme. We cut through the complexity, control the costs and deal with the data, providing peace of mind with a quality assured service. To discuss how we can take care of your pension scheme’s GMP reconciliation exercise, please get in touch.


     

     



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