The warning comes as HMRC’s survey results show that 60% of the estimated 4,500 DB schemes within the UK have still not requested to use the Scheme Reconciliation Service. HMRC’s latest Countdown Bulletin – issued last week – highlights that there is now little over 12 months left until the April 2016 commencement deadline.
Monica Cope, Chief Operating Officer at Veratta said: “As HMRC has highlighted in their regular bulletins, there are a number of potential pitfalls for trustees who fail to engage in the necessary preparations and the risks associated with unreconciled GMPs could prove costly for schemes that fail to properly address them. For example, uncertainty about the true value of a scheme’s GMP liabilities can have a huge impact on a scheme’s funding position and strategy and the discovery of additional members and discrepancies with deferred GMP liabilities can lead to valuation errors that go on to affect future scheme funding decisions.
“Similarly, for trustees looking to complete a buy out exercise, insurers will apply a 5% premium loading to the cost of buy out unless there is evidence that GMPs have been reconciled in the scheme. The actual cost of this premium can potentially run into millions of pounds. Finally, by failing to reconcile GMPs trustees could be breaking their legal obligation of paying the correct benefit amounts to members. They could also be in contravention of The Pensions Regulator’s guidance on record keeping.
“Our experience shows that the reconciliation and corresponding rectification processes can take in excess of two years to complete. Therefore, trustees need to act as soon as possible and certainly well within the next 12 months. We believe that trustees of DB schemes are generally aware of the approaching deadline and the task in hand but many are without an actual plan of action. It’s essential that trustees of all contracted out schemes make this a high priority and put plans into place immediately, to avoid the risks and potential cost implications of failing to deal with GMP reconciliation.”
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