Stealing a lyric from the man in black, our specialist Guaranteed Minimum Pension (GMP) team is encouraging trustees to walk the line between GMP rectifications and wider benefit audit projects. It is important they understand the difference between the two and avoid a reasonably simple process becoming unwieldy and expensive.
What is a benefit audit?
In the broadest of terms, a benefit audit in the context of a pension scheme is reviewing all recorded benefits (whether currently in payment or due to start in the future) to ensure they’re as expected, i.e. in line with scheme rules and expected practice. These exercises can cover everything from individual data fields on member records – such as the date joined or pensionable salary entry – to the treatment of Barber benefits or the application of commutation factors. These exercises would be a full review of benefits for groups of members and will include all aspects of their benefits; including GMPs.
"GMP reconciliation and subsequent rectification is in sharp focus at the moment, hot on the heels of the abolition of contracting-out. "
So, GMP rectification is an audit focusing on a single benefit?
Yes! GMP reconciliation and subsequent rectification is in sharp focus at the moment, hot on the heels of the abolition of contracting-out. It is therefore likely that the majority of schemes will soon be thinking about an exercise to amend member benefits to reflect their correct GMP. In order to control both the costs and timescales of a GMP rectification project, it is important for trustees to make sure they understand where its boundaries are.
How can this be done?
Your administrator will be doing these projects for a large number of clients, so is likely to have in place a standard approach which makes the most of the capabilities of their administration system.
These approaches will have been designed with input from the actuarial teams (who have their eye on scheme liabilities and cashflows) and in-house technicians who understand the impact of adjusting member benefits.
Our own GMP rectification project clearly defines the members who fall within the scope of the exercise and which elements of their benefits may be subject to change; these are simply their GMP and associated excess benefits. By engaging with trustees at the start of the project and clearly setting out the work that’s expected to be done, we can avoid the temptation to include other members or benefits and make sure the project delivers the required value over the right timeframe.
Putting a ring of fire around GMP Rectification projects to avoid scope creep is essential for trustees to get the most out of their limited resource in this area. The key step in making this happen is to ensure your administrator understands the true nature of a GMP rectification project and the point at which it becomes something else altogether.
Oh, and don’t forget the boy named Sue, who may have an impact on GMP equalisation which is something else schemes could consider when undertaking a rectification project, although we suspect most schemes will defer a decision on this until some point in the future.
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