The clock ticking down to the end-of contracting out is getting louder and louder. With just over a year to go, many trustees and administrators are getting their houses in order by completing the reconciliation of their records with those held by HMRC. However, many more are not. A recent estimate indicated that, on average, around 5,000 data queries a day would need to be resolved in order to complete reconciliations in the desired timescale.
For contracted-out schemes that are already closed to build up of future benefits, there are no excuses for brushing reconciliation exercises under the carpet. Schemes which are open to accrual can also progress matters in advance of the end of contracting-out on 6 April 2016, using HMRC’s Scheme Reconciliation Service.
This is an exercise that must be done and trustees and administrators should take immediate action to complete any outstanding tasks. The resource in an already stretched HMRC team will wither on the vine from 2016 until December 2018 when all individuals will be written to confirming their contracted-out pension entitlements. Failure to act now may leave schemes carrying additional liabilities which they cannot prove belong elsewhere. It is therefore also in employers’ interests that trustees complete the required tasks.
There is no doubt that a GMP reconciliation exercise will shine a light on any inadequacies in a scheme’s data records. This may make some trustees and administrators shift uncomfortably in their seats. However, as I have said on numerous occasions, data and benefit issues will always rise to the surface eventually and are much easier to deal with today rather than tomorrow.
The warnings from the Regulator are clear too. A recent report from the Pensions Regulator noted that contracted-out data is one of the main reasons for schemes failing to meet a conditional data score of 90% or more. The Regulator also rightly highlights that inaccurate data can result in:
- Inaccurate scheme valuations;
- Increased risk to the security of members’ benefits; and
- Unexpected financial demands on the sponsoring employer of the scheme;
The message to trustees and sponsoring employers is clear. Sort out your GMP reconciliations, sort out your data and do it now…the clock is ticking and the time for excuses is over.