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At the time of writing this blog, we have received final data cuts from HMRC for the majority of our schemes. From the start, we have sought to work with HMRC in their process and we have tried to be proactive in providing any help or data that HMRC needed in order to process the final data cuts, and that appears to have paid off with the high number that we have received.
Our view is that the final data cuts will be an important part of the GMP Reconciliation and Rectification process. They represent HMRC’s final position and it is important to agree that final position before moving on to rectification. It seems a shame to have put all this effort into reconciling our records over the last 8 years or so, only to then fail to agree a final position at the end.
Of course, if trustees decide that the final data cut is incorrect and choose instead to stick with the original reconciled position, then that is their choice. But it is important to present trustees with the relevant information they will need to make that decision. Not doing so could result in problems in the future, as we could rectify members incorrectly and have to re-rectify later on, which could be embarrassing and costly, all because the final data cut wasn’t examined sufficiently.
There has been some disappointment and frustration around the industry given that the final data cuts do not always reflect the reconciled position agreed with HMRC. At Barnett Waddingham, we expected that it would be unlikely that things would tie up exactly and have been planning accordingly. For example, we knew that even though we had reconciled a member with HMRC, another scheme could tell HMRC that the member had transferred into our scheme which would result in them appearing on the final data cut. We also realised that due to changing information in the SRS system that HMRC were doing some ‘clean-up’ work in the background which was resulting in a change of Guaranteed Minimum Pension (GMP) amounts.
Our testing found that approximately 10% of members had a different current GMP figure to that which we had reconciled with HMRC, despite not having received any notification from HMRC.
The Final Data Cut Analysis Tool
As a result of this, we have designed a Final Data Cut Analysis tool which efficiently compares our data with that in the final data cut and HMRC’s Online GMP Checker.
The Final Data Cut Analysis Tool has taken up development time, but that has been time well spent. Now that the final data cuts are arriving, we are able to compare and analyse the data for schemes efficiently keeping costs down for our clients.
So… What results are we seeing?
Having analysed the final data cuts from a few schemes in detail already, we are actually seeing a larger number of discrepancies than we originally expected around 15% of members having discrepancies. This reinforces the need to analyse the final data cuts and make trustees aware of discrepancies, as the number of discrepancies could be material.
But what to do about the discrepancies?
Our intention with the final data cut analysis is not to re-reconcile all members with discrepancies. A lot of time and effort, not to mention costs for the trustees, has already gone into reconciling member GMPs. Instead we will discuss the output with trustees in a way that is easy to understand after which the trustees will be able to either:
- Accept HMRC’s current position (either the final data cut or the Online GMP Checker).
- Accept the previously reconciled amounts.
- Investigate further. We do not expect this option to be taken in many cases given that it is likely to incur further costs, and after doing so the trustees will still have to agree to option 1 or 2 above.
We believe that the final data cuts from HMRC are an important part of the GMP reconciliation process, and welcome the chance to bring the entire process to an end. It is good to have confirmation of HMRCs final position before we move on the task of rectifying member benefits and then on to equalising benefits. Having a strong process in place (along with the Analysis Tool) makes this final stage efficient, and provides clarity to our clients who can then make informed decisions on how to proceed.
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