Recent press coverage has highlighted how efforts to match pension schemes’ records with those held by HMRC are affecting members’ pensions. Some people are seeing reductions to their pensions going forward, but others are receiving an increased pension and significant back-payments. Defined benefit occupational pensions and State Pensions can both be affected.
HMRC plans to stop accepting new bulk queries from pension schemes on 31 October 2018. After that date, there will also be no further opportunity for schemes to challenge the answers that HMRC gives in response to queries already submitted.
Willis Towers Watson fears that this deadline will lead to many members getting the wrong pensions. Sometimes this will be because the State will persist in using an incorrect GMP; the scheme must then choose between using a GMP that is consistent with the State’s record and a GMP that they believe to be right. In other cases, it will be because schemes run out of time to probe all records thoroughly and end up prioritising cases where an accurate number will make most difference.
Based on its own experience – working on projects with more than 100 pension schemes, covering over one million member records – and discussions with others in the industry, Willis Towers Watson believes that many pension schemes need another 12 months of support from HMRC to complete the work to a satisfactory level. It is clear that most pension schemes have made good progress in reconciling GMP entitlements, however as the deadline approaches Trustees will face making important decisions as to where to draw the line, as for many schemes, achieving close to 100% will be unachievable.
Philip Titchener, Head of Data Solutions at Willis Towers Watson commented: “If pension schemes run out of time and are not able to complete this project, some people will get lower pensions than they are entitled to.
“Most private sector schemes have made good progress with their GMP reconciliations, but much work remains. Projects that were typically expected to take two years are often taking much longer, and there is simply not enough time and skilled resource available to complete all projects by HMRC’s deadline.”
Reasons for this include:
Capacity bottlenecks as thousands of schemes go through the same process at the same time. Some of the largest pension schemes will have tens of thousands of records to review and reconcile.
For members still accruing new benefits when contracting out ended in April 2016, HMRC was not able to provide GMP records for all schemes until halfway through 2017.
Slow turnaround times. For many schemes, HMRC responses have typically come four to six months after they submit a query.
This was new ground for HMRC when it launched its Scheme Reconciliation service in April 2014, and schemes starting work early found progress slow.
No one anticipated the number of pension differences that would need to be investigated. In some cases, this work has involved reviewing records covering a 40 year period, before integrated computer-based systems were widespread, and much of the payroll, pension and HMRC administration was paper-based.
Remaining discrepancies often relate to more complex cases. These include disputes involving pensions in more than one scheme or where the scheme has no record of entitlement, for example because of a transfer.
Philip Titchener said: “Over the past 18 months there have been improvements in the way that HMRC has reacted to queries from schemes, and we find the staff very helpful. However, it has always felt as though HMRC was playing catch up with a process that took time to hit top gear. Delayed responses have been a momentum breaker”.
“We would ask the Government to extend the deadline for submitting queries by one year. This would allow Trustees to fully review all historic data sources and to conduct one or two more cycles of queries with HMRC”.
“Without that extension, the risk remains that unresolved cases could have a material impact on individuals’ pension scheme and/or State benefits.”
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