GMP reconciliation is a major issue and needs careful planning if it is to go according to plan. Helen Morrissey talks to two schemes about their experiences so far.
- Many schemes underestimate the amount of work that needs to go into the GMP reconciliation exercise
- HMRC so far has been responsive but may take longer to respond as the number of queries builds
- Try and get extra resource if possible
The abolition of contracting out in April 2016 requires schemes to reconcile their guaranteed minimum pension (GMP) data with that of HMRC. While the ultimate deadline for this work to be completed is not until 2018 there are concerns that many schemes are leaving it too late to make a start on this enormous task.
However, Staffordshire Pension Fund, together with Peninsula Pensions - a shared service created by Devon and Somerset County Councils who administer both LGPS funds, Devon & Somerset Fire and Avon & Somerset Police - have been working on this issue for some time and have valuable lessons to share.
Working with their administration provider Heywood both funds are making significant progress. However, both will admit the process has not been without its challenges.
"It has been a resource issue as we have many different ongoing projects and deadlines," says Staffordshire Pension Fund assistant pensions manager John Wiggins. "We decided our approach at the outset and spoke to the various service providers. The decision was to go in-house with the assistance of the Heywood GMP software module. We registered and obtained the file from HMRC and started to categorise the mismatches between HMRC's records and our own. Initially we looked at orphan cases where HMRC shows the scheme has a liability that does not exist on our records. The priority was to address these and ensure they were corrected. We also looked at other areas such as name mismatches. Of all the discrepancies we have dealt with to date the GMP not reconciling to HMRC records was actually the smallest issue."
Peninsula Pensions pensions project manager Viv Ray agrees there are many areas that schemes have to consider when taking on this task.
"Orphaned records are a major issue and we have to go back to our archive records to check these," she says. "One area we do have an issue with is where the liability has been transferred out to another scheme and HMRC needs to be informed of the new scheme contracted out number (SCON), as this information is not always available from old records. So far HMRC has been helpful and although we haven't sent that many queries out yet, they have been fairly quick in coming back with a response."
She continues: "We are currently working on revised data from HMRC and our priority is ensuring that their data matches with our data so our pension fund is not left with a GMP liability that does not belong to us. To check the liability it means going back as far back as 1978 in some cases and checking old paper records before this sort of data was computerised. It can be a long hard slog to obtain all the information that HMRC requires. I think some authorities may struggle with the availability of old records which may only hold some of the required information."
The process has been made easier by working closely with Heywood who have provided software to help with the initial matching phase.
"The software compares scheme data with the information received from HMRC," says Heywood service development manager Vanessa Burke. "It looks at things like surname, national insurance number, service dates etc. A report is then produced highlighting what has been matched and what hasn't. It splits out where data has matched but the GMP and other fields hasn't and allows you to input your tolerances. You can run it quite quickly and so should be able to do it often."
She continues: "We are developing the next stage of the project where you now have to make adjustments for over/under payments. We are looking for guidance from the Local Government Association and other government boards before we move forward with this calculation piece. Additionally, we are trying to develop a strategy that will help cut down the sheer amount of man hours people are spending on this and are working with Devon and another local authority on a pilot to reduce the time spent on investigations.
Working with HMRC
One area of debate has been the role of HMRC in the process. The agency has come in for a lot of criticism from schemes believing HMRC is not as helpful as it could be. However, Ray believes that HMRC have so far been responsive to any queries though she admits this may well change as the number of queries being submitted starts to grow.
"We have recently received a new set of updated data from HMRC and it is mind-blowing when you first get the information back as you think ‘where do I start with all of this?' she says. "There is a long way to go in terms of sending queries back to HMRC and getting responses back. It will take many months/years to sort through everything. HMRC responses are quite quick at the moment but I understand, as more queries are sent, the timescale for a response will be several months."
What can schemes do to make the process easier?
So far the process of going through GMP data seems to pose a major challenge so what can schemes do to make their lives easier?
Heywood's Burke urges schemes to get as organised as possible: "The quicker you can get the data matching exercise done the better because at least then you know the size of the beast that you are dealing with," she says.
Peninsula Pensions' Ray agrees that organisation is the key and that schemes should attempt to gather extra resource wherever possible.
"Schemes really should not underestimate the amount of work that is involved here and they should try to get some extra resource if they can," she says. "If you can get help from your pension administration system supplier in the way that we have then that is great as that has really helped us to recognise what the key queries are, and I would say you have to ensure you are extremely organised as it is easy to go off target."
Staffordshire's Wiggins says his scheme has been able to secure 1.5 extra staff to help with the project though he admits this can bring challenges of its own.
"Before work can go ahead and be passed over to new staff it is important that existing specialist staff look through the individual process and data so that they are able to provide training and guidance," he says. "Schemes also need to ensure they know where their archive data is and that it is readily accessible. It is important to provide HMRC with as much data as you possibly can."
While both schemes have gone a long way in their preparation, there is still much to do. Staffordshire's Wiggins says the fund is planning to re-run the filtered HMRC file and consider the recalculation of pensions already in payment. He also thinks the fund may have to make adjustments to pensions in payment and address any cases of arrears or overpayments. He is confident of getting through most deferred/pensioner cases by the deadline, though he acknowledges any particularly difficult cases with data or complex benefit recalculations may go beyond this."
Peninsula Pensions' Ray agrees there is still plenty of work ahead: "The main deadline for completion of this work is 2018, but ideally all pensions in payment with a GMP liability should be checked by April 2016 when the next pension increase is due," she says. "I agree with Staffordshire that the mismatches of GMP values for pensions in payment is relatively small in comparison to the rest of the work involved - the biggest work will be checking the records of members on the HMRC data that we don't believe we have a liability for and the records where we think we have a liability but HMRC doesn't have it in its database."
The issue of GMP equalisation is not going away and schemes clearly will not do themselves any favours by delaying making a start.
"I think there is a lot of information out there so I really don't think anyone can say they are unaware of this issue," says Ray. "However, they might underestimate how much work needs to go into this process or look to bury their heads in the sand for now and hope it gets a bit easier over time."
Staffordshire's Wiggins urges schemes to engage sooner rather than later.
"We attend a lot of meetings and I have not encountered many schemes that are unaware of the project," he says. "However, what I would say is that if you haven't started by now then you will struggle."
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