Extension of flexible tolerance level would make process a ‘less daunting task’.
Pension consultants Barnett Waddingham are calling on The Pensions Regulator (TPR) to help reduce the burden on trustees of completing guaranteed minimum pensions (GMP) reconciliations by encouraging trustees to adopt a more flexible £2 tolerance level to all schemes.
In October 2012 TPR updated its winding up guidance and encouraged trustees and administrators to adopt a £2 per week tolerance level, in line with the tolerance level adopted by the Pension Protection Fund.
Barnett Waddingham is urging the TPR to extend this £2 tolerance level to ‘live’ schemes in addition to schemes that are winding up, which would allow relatively small GMP differences to be reconciled more efficiently and reduce costs. It would also create greater consistency across the industry.
Carole Ward, Partner, Barnett Waddingham, says: “Barnett Waddingham is calling on TPR to extend the tolerance level to all schemes as it will simplify and make the whole process of GMP reconciliation a less daunting task for everyone.
“The end of DB contracting out in 2016 means that thousands of schemes will be required to complete a GMP reconciliation over the next few years. At present a reconciliation is one of the most costly and time consuming jobs for trustees who are required to match trustee and HMRC data on GMPs ‘to the penny’.
“Despite the introduction of Shared Workspace, the National Insurance Services to Pensions Industry’s (NISPI) powerful online GMP reconciliation tool, GMP reconciliations are still renowned for being laborious and disproportionately costly exercises. If trustees felt empowered to introduce a realistic tolerance limit such as the £2 per week limit allowed for schemes that are winding up, it would greatly reduce the burden of completing a GMP reconciliation.
“Our experience in completing GMP reconciliations for schemes which are able to use the £2 tolerance level tells us that the introduction of a tolerance level greatly reduces the timescales for completing the exercise, which in turn provides the member with confirmation of their benefit entitlement at an earlier stage in the process.”