PASA: guidance on GMP reconciliation and rectification

The Pensions Administration Standards Association have launched guidance relating to Guaranteed Minimum Pension (GMP) reconciliation and rectification projects.

At the reconciliation launch event on 19 January, Geraldine Brassett from PASA’s GMP Working Party and Helen Powell of Allen & Overy discussed the separate areas of guidance and a call to action with over 100 people.

The rectification guidance was released as part of the PMI’s administration summit on 29 February 2016, again hosted by Geraldine Brassett and Helen Powell.  This guidance has tried to do a lot of the legal legwork on a general basis and highlights the need for a robust audit trail for individual schemes.

The GMP guidance highlights ten reasons for completing a reconciliation including compliance with the Data Protection Act (given Trustees are Data Controllers) and The Pensions Regulator (TPR) Record Keeping Requirements, in addition to pension trustees’ fundamental duty to pay the right benefits at the right time to the right people. 

Other key reasons include costs / funding and future communication with members by both trustees and HMRC.

Guidance note one

Reconciling contracted-out benefits (a framework for action)

There are three steps in data reconciliation:

Guidance note two

Member level reconciliation

There will be discrepancies in the two sets of data due to membership movements and the fact that they’re not always notified to NICO, or an incorrect SCON has been used on year-end returns.

Reconciling contracted-out membership (including post 1997 only members) is an important part of the process and should ensure reconciliation work encompasses all scheme members.

Members grouped by reconciliation status:

Guidance note three

The role of tolerances in reconciliation and rectification exercises

Do you mean a rounding tolerance or a scheme tolerance? The former is where the same data set produces slightly different results (strange but true!) and the latter is an amount within which the costs of reconciliation outweigh the benefits.

A rounding tolerance is likely to be 1p or 2p a week (depending on the date the GMP is calculated e.g. DOL or SPA) – anything more than that will be due to a data mismatch.

A scheme tolerance is typically £2 a week although this should be considered on a scheme-by-scheme basis.

And one more tolerance to think about...rectification tolerance. There’s more to come, so keep reading!

Guidance note four

From reconciliation to rectification

Rectification should continue from where reconciliation left off; so the first part of a transition is to summarise the current position.

You should get a report from your administrator highlighting reconciled membership amounts and detailing members where GMP amounts have changed during the reconciliation process.  At the same time you should be presented with a potential approach to apply rectification. This information will allow trustees to decide on the scope of a rectification project.

Guidance note five

Rectifying discrepancies

Now the hard work starts. You know the scope of the problem, you can whittle it down using a rectification tolerance as a nod to materiality. In anticipation of your administrator having automated calculation and payroll processes in place, identifying over and under-payments should be reasonably straightforward.

Your legal advice and an appropriate tolerance level should be applied to your members before any updates to records are made, communications drafted and payment demands agreed upon.

Guidance note six

Dealing with special cases

These are likely to be existing pensioners over GMP age. There will be cases of overpayment and cases of underpayment, and your legal advice will be crucial here.

Overpayments – there will be some discretion to write these off, but there will also be an expectation that benefits are corrected to the right level going forward. There is some goodwill here to work into your member communications.

Underpayments – there will be little scope (if any) to ignore past underpayments, so you should expect to be making additional payments to some members.