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    Learn to Love your GMP Reconciliation Exercise

    By Catrina Browne on Friday, June 17, 2016

    There is a real sense in the pensions world, that many custodians of pension schemes are being dragged kicking and screaming into the completion of their pension schemes’ GMP reconciliation exercises. It’s understandable in a way. If you haven’t completed many GMP reconciliation exercises before, then the calculations and HMRC’s requirements are likely to make you very nervous and the end of 2018 deadline doesn’t help!

    I can’t tell you that the GMP reconciliation exercise doesn’t matter, it does. Discrepancies with HMRC records can impact substantially on a member’s benefits and on a scheme’s funding position. However, if pension schemes take a few sensible steps, then this can turn into a project with real worth, after all, we all want to make sure that our members are treated properly.

    Here’s how you can make sure that you end up with a warm glow of satisfaction at the end of 2018:

    • Start planning now – it’s not too late, there is still time to sort out the GMP reconciliation exercise.
    • Be realistic about the help you need. If you haven’t got experience of completing a GMP reconciliation exercise, get an expert to scope out the work involved, even if you are considering resourcing this in-house.  Even if you do eventually decide to outsource, this will give you a much better idea of what the external company are actually promising to do.
    • Think about this as a benefit rectification exercise, not just a GMP reconciliation exercise. You will be amending members’ benefits once the GMP reconciliation is complete. Therefore, make sure that benefit rectification is included in your plans from the start so that it doesn’t create unexpected costs at the end. This process concludes when all members’ benefits have been adjusted, all adjusted members have been informed and your data reflects the rectified position, not before.
    • Get the governance right. Many schemes are outsourcing their GMP reconciliation exercises to expert firms, but in doing so they must ensure that they will be left with a project archive and audit trail that easily answers any subsequent queries. GMP amounts may be around on members’ records for a long time and there is no point having experts take action on your behalf, which you subsequently can’t explain.

    Once the GMP reconciliation exercise is complete, it removes a major area of uncertainty in your pension scheme’s administration data. It means that GMP equalisation (it’s still coming!) will be easier and GMP conversion can be considered earlier.

    In the spirit of tough love, it is also worth saying that once a pension scheme has contracted-out, it accepts the need for HMRC checks, with those reduced National Insurance contributions. With completion of a bulk GMP reconciliation exercise now, trustees are merely paying upfront for all the future individual checks and rectification of their members’ contracted-out benefits, and future administration fees should recognise this.

    Any pension scheme administrator with experience of benefit rectification will know that GMP component splits in payment can be badly maintained with unknown over and under payments racking up as a result. This is a chance to stop this in its tracks and put robust procedures in place to ensure this doesn’t happen again.

    These projects can be seen as costly, but can pay dividends in both the short and long term.    

    What’s not to love about a project that;

    • Provides value for money.
    • Provides a sound foundation for future de-risking.
    • Vastly improves the quality of your pension scheme data.
    • Stops the wrong pension benefits being paid.
    • Has industry guidance and expertise available (but hurry!).

    Give your GMP reconciliation some love today!


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